Small wars to come

TLDR: Beef; cars; shampoo; lawyers; builders; trains; regulators.

In May this year I was still looking forward to a Conservative Civil War. The referendum campaign was going to be brutal for the Tory party as it pitted an exit minority against Cameron’s more loyal MPs. The fallout after a comfortable remain vote was going to be brutal. There would be recriminations, defections, maybe the odd coup attempt. Cameron would hang on, but he would be so weak that his party couldn’t pass much of its manifesto and even the hapless Corbyn might start looking good.

None of that happened. However, the unity the Tories are showing now with their new leader and jenga tower opposition masks a second conflict in the making, one which will emerge from the party’s ideological divide during the Brexit process.

This blog will not discuss article 50, the various exit models or WTO membership. Later than I would have hoped, mainstream conversation is now covering these well. Instead I will zoom through the issues which pit different Tory factions against each other. These factions are:

  1. free-market liberals, libertarians, globalists
  2. small-c conservatives, migration sceptics, protectionists
  3. Parliamentary sovereignty champions, ‘Runnymede conservatives’

Daniel Hannan is a good example of the first, John Redwood of the third, and perhaps Peter Bone of the second.

Australia

All we seem to hear about at the moment is a proposed free-trade agreement with Australia. Leave aside how long this will take to achieve. A free trade deal with Australia will split the Conservatives over its core goals. Australia will prioritise getting good access for its beef and dairy, as it has done in its other trade agreements. Group A will be perfectly on board with this and jubilant that it will provide British consumers with cheaper food. However it will really threaten many British farmers, especially if group A have already won the argument over reducing agricultural subsidies. Group B could kick-off. (It just Australia that poses this problem, it’s the most immediate example.)

USA trade deal – TTIP

You get a similar issue with an America trade deal, or with joining the EU USA trade deal (TTIP). America will outcompete Britain in all kinds of areas including car manufacture and heavy industry. American workers have fewer rights and protections than British ones. To compete we may either see longer hours, eroded labour law, or simply many British jobs being lost. The country may benefit overall but many communities will lose out. Groups B and C may also have grievances over consumer protection being, we don’t know for sure yet, but it looks like TTIP will corrode pharmaceutical and chemical standards, may introduce GM foods and unusual agricultural practices, even dirtier car engines.

Investor protection

The other controversial element of TTIP, which has provoked pretty wide opposition in France, Germany, and Belgium, is the investment protection clause. I’ve written about it elsewhere and it is a nuanced subject, but essentially it may allow big companies to sue states, thereby influencing their lawmaking process.

This was a rallying cry of the anti-EU left in the referendum campaign, and something about which both Ukip and group C were vocally critical. However at the moment it looks like Washington will not budge on the investor protection clause being part of TTIP, and indeed it is part of most other trade deals Britain is already in. Backing out such deals would dismay group A and hammer the economy, since they are included in deals we have through the EU, such as with Korea, South Africa, Mexico. Backing out of these would send pretty negative signals to the markets, which are already pessimistic.

Developing world trade agreements

Ministers in the new government, including those from all three groups, are proudly promising trade deals with populace developing countries such as China, India, and Brazil. Such deals could of course bring many benefits. However, in return for opening up their markets, we know that these countries typically ask for their companies to be able to send workers to the partner country to complete contracts. What that means is, Indian company X wins a contract to build a swimming pool in Brighton, possibly by undercutting British firms’ bids, then sends 30 Indian builders to Brighton for a year to do the building. You can see why group B may not be delighted by this. Even worse, Indian builders may operate under Indian employment law and wage law, much lower protections than British workers enjoy. If you accept that a court reason the country voted for Brexit was to limit immigration then this looks like a poor outcome.

 

Government procurement and trade in services

This points to a problem with the current direction of global trade deals in general, which is to liberalise services and government contracts by stopping states favouring their own companies, thus allowing free markets to operate. Historically, the British civil service has observed such rules quite honestly, which is why a lot of our energy infrastructure is owned by foreign companies, a lot of our trains and police cars are manufactured by in foreign factories, even the running of our prisons and migration detention horrors contracted out to firms with headquarters elsewhere. This is something that group B and sometimes group C detest.

Major WTO deals in the near future include the Trade in Services Agreement and the Revised Government Procurement Agreement (TiSA and GPA). These will both advance the globalised situation. Both will also make it harder for the British government to support British industries like steel, manufacturing, or coal, either by offering them cheap loans, tax breaks, or lucrative contracts. Those would be seen as perverting competition.

[The GPA is actually already passed but as I understand, not fully in force.]

Worldwide regulation convergence

as is kind of implicit from all of the above, it looks like product and service rules and even the rules affecting how governments buy things are being gradually brought into line, at least among Western countries. This will be accelerated and cemented by TTIP and by TPP (a similar deal between America, Japan, South Korea, Australia, Mexico and others). Because UK companies want to sell to one of these places, and to the remaining EU. They will have two follow a lot of the rules agreed in these deals, whether Britain has signed up to them as a country or not. This might cause a lot of frustration in the Tory party and among voters, especially when we could have influenced TTIP much more as an EU member state. There’s no real way to avoid the situation other than Trump winning the presidency, Britain retreating from global trade. Both cheerful alternatives.

 

Hopefully that was interesting and covered topics a little beyond what the news cycle is focusing on. I am sure they will be the battlegrounds of the future. I have no idea who will win.

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The least-bad Brexit model is still a bad model

Reports from the BBC, Times and Guardian indicate that Parliament may use its power after Brexit to keep Britain in the single market by joining the EEA (European Economic Area). This option is often known as the Norwegian option, and in my opinion is the least traumatic version of Brexit. However, it would still be worse than retaining EU membership, and is not laid out as comprehensively as its proponents claim.

A few years ago I wrote a long paper on the strengths of the Norwegian option for a prominent think tank. Here I will set out why I do not think it is appropriate for Britain, and the flaws in the arguments of those who support it. [However, it would not be cataclysmic, and if we do vote to leave, I very much hope this is the way Britain goes and the problems I indentify below are addressed.)

This article will assume a basic understanding of the EU debate and the Norwegian model (‘Flexit’/Flexcit, EEA) case and go into some detail. Unlike the more spectacular WTO option, many of the drawbacks of the Norwegian model are rather technical…

Roland Smith, who is possibly the most persuasive champion of this exit ideal (and who outlined the deal on Newsnight), frames Britain achieving the EEA option as a near certainty, if it wanted to. It would be easier to win EEA membership from the EU than a Swiss style deal or souped-up EU-UK free trade agreement, for sure. (Gove’s argument that German car manufacturers would force the whole EU to give Britain a good deal is ludicrous.)  Indeed, an EEA offer is also the prediction of some pro-remain commentators. Anonymous pro-remain MPs have given stories to the BBC and Guardian that they would keep Britain in the single market by opting for a Norwegian option if the country votes to leave. Whether this would be acceptable or likely, and how this aligns with the importance of parliamentary sovereignty, is outlined by Jonathan Portes here. and Charles Grant here.

However, it is far from assured that the option is open: every remaining EU nation and the four EFTA states (Iceland, Norway, Switzerland, Liechtenstein) would each be able to veto it. That’s 31 vetoes.

There’s a serious chance that one or more of these countries will hold up the deal for their own ends. It is dishonest for either side to propose the Norway option as if it were easily attainable. At the very least, the other EU and EFTA countries will try to stop Britain gaining the kind of power that could muck up the EU. This means there will be alterations to what we think of as the EEA option.

The most obvious new conditions forced upon Britain in the event of attempting to join the EEA are:
1) continued budget contributions at current levels, and
2) a removal of the EEA clause that allows an ‘emergency brake’ on the free movement of people, and
3) a moratorium on Britain using the ‘Right of Reservation’ veto power in the EEA treaty for a number of years, or without the other EFTA-EEA states’ support

These requirements would not be fatal to the deal, but would bring the EEA option even closer to Britain’s current situation, so less attractive to Leavers concerned with migration controls or absolute sovereignty.

It should also be noted that every single current piece of single market legislation would stay in place in the UK. Not only would there be no red tape bonfire, there would be not even a candle burning, while the Brussels pipeline would continue to pump out rules that we would be legally obliged to adopt. Again, this would help economic continuity.

The Norway option is supported by group of eurosceptics bound together as the Leave Alliance (LA) whose members are united behind a distinct plan for leaving the EU. The full-length version of this is known as Flexcit (Flexible Exit and Continuous Development), is over 400 pages, while the 48 page short version is entitled ‘The Market Solution’.

Prominent in this group are Dr Richard North of EUReferendum.com and Robert Oulds of the Bruges Group.  The group is not closely affiliated with the prominent Eurosceptic campaigns (Vote Leave, Leave.EU and Grassroots Out) and indeed frequently criticises members of each of them for poor performances, tactical failures or factual error.

I don’t summarise the plan itself here, so a look at The Market Solution would be useful for readers new to the topic. This note does not cover the obvious political drawbacks such as continued free movement of people, or the largest negative economic and diplomatic consequences, detailed by John Springford here.

  1. The most basic concern is simply that Flexcit does not give a convincing account explaining how Britain would gain EEA-EFTA membership. As I set out in The Norwegian Way pp.11-12 there is considerable difficulty in this happening, since any EU member or EFTA member could veto it. It is possible, certainly, but suspect the A8+2 countries would push for UK budget contributions to stay at the level they are now, rather than the per capita level Norway pays them, before accepting the deal.
    I also expect the EFTA states would push for a mechanism meaning Britain’s influence on EFTA’s direction was strictly limited, lest her size change the whole bloc’s dynamic.
  2. Failing EEA membership, Flexcit sets out the ‘Shadow EEA’, which sees Britain unilaterally adopting all EEA single market legislation (including the free movement of peoples). The hope is that this would force the EU to continue offering single market access on current terms. Flexcit treats this disappointingly breezily: it assumes that with regulatory equivalence the WTO would force the EU to keep single market access open. This is mildly convincing in terms of NTBs and TBTs, but not in terms of tariffs or quotas, or the rights of UK citizens in the EEA. If the UK left the EU without a formal agreement, the EU would be obliged to apply the common external tariff (CET) to it regardless of the UK’s regulatory equivalence efforts.
    If one or more EEA member had formally blocked UK EEA membership, it is difficult to see the Area’s members all accepting a de facto continuation (especially as, if Britain were not a formal EEA member, it would not be paying EEA-style contributions).
  3. The Flexcit solution, despite being extremely well researched regarding the working and importance of global/international standards bodies, overstates their importance; and it overstates an independent Britain’s possible influence within them. While Flexcit and the EUReferendum blog et cetera show many examples of Norway or other small states influencing global rules, and thus influencing America and the EU, this is very selective sampling. It usually has to do with one of Norway’s few key sectors such as fisheries or oil: the UK is a much more mixed economy with far more important sectors.
    No attempt is made to see in which cases Norway (or whichever state) is powerless or sidelined, and there is little discussion of the fact that the EU itself dominates many international bodies, and would be on guard against Britain directly opposing it.
  4. In any case, because most of these international bodies rely on consensus or soft law (industry best practice, codes of conduct), or the private sector, or a multi-layered procedure, it is hard to see how even a titanic effort of diplomacy in global bodies will compensate Britain’s lack of a vote in the EU institutions, except just possibly in the long term (beyond 10 years).
    As we’ve seen from the failure of the WTO Doha Round and the re-emergence of bilateral and plurilateral deals, multilateralism has a large number of limitations and it is unclear whether the UK’s enthusiasm alone could revitalise such a process.
  5. It is likewise unclear whether other countries will be willing to take up the British offer of Partial Scope Agreements if multilateralism and FTA attempts fail. They could be excellent in some cases, but in many, states will wish to keep a sector protected as a bargaining chip in return for the liberalisation of a protected British sector, in a more comprehensive FTA. It is particularly hard to see Britain winning a slew of PSAs from America without making large concessions elsewhere.
    Flexcit fails to demonstrate why other countries would be willing to look at ‘Unbundling’ issues with Britain alone.
  6. Flexcit feels especially weak when it moves beyond the EEA stepping stone and tries to show the potential of further ‘stones’. The idea of a free trading Europe orchestrated by UNECE (the United Nations economic commission on Europe), with Britain a principal architect, is very hard to swallow. Why would the EU agree to being superseded (phase three)? What is in it for France and Germany?
    How does a role in UNECE, while Britain remains an EEA member, protect Britain from the EU passing EEA-relevant laws that are not inspired by international standards, or have damaging gold plating? It does not.
    Bodies like the G20, OECD and WTO are indeed influential on trading rules and product standards, but influence within them often relies on blocs/alliances/groupings (e.g. G10, ACP, Cairns), which Britain would be new to. Britain will probably end up either aligning with the EU in virtually all cases, or aligning with the United States and being dominated space even more.Flexit needs far more detail on how an overall leadership/influential position could be developed, rather than just impressive case studies. P401 attempts this but without much conviction.
  1. How could Britain lead the whole developed world to adopt a migration & asylum approach that addresses push and pull factors?
    The analysis of push factors in Flexit is excellent, but we are seeing how hard it is for the (centralised) Schengen area to coordinate on relatively unambitious migration measures. Post Brexit, the UK would be a lone voice annoyingly telling other states what to do to address their problems – unlikely to go down well. UK is already leading on funding refugee camps near Syria, for example, and no one is following us.
    Britain alone adapting its fisheries, foreign, foreign aid, agricultural and trade policies will not have an impact on push factors adequate to solve migration and asylum movement into Europe (and towards Calais).
    (On a side note, addressing many of the Pull factors Flexcit identifies would take decades if not generations to bear results, so do little to satisfy voters whose primary concern is current migration levels.)
  2. There is a serious danger in overstating the Veto and Emergency Brake powers of EEA members. Using the veto (reservation) might, as I argue in TNW, be fine in limited product areas, but using it to stop an important EU law that the EU considers EEA relevant would trigger a political crisis. Likewise using the Emergency Brake on migration soon after exit would cause a crisis and probable suspension of the EEA system, and the EFTA EEA members would not allow Britain to join if it suspected the UK Government of entertaining such plans.
  3. Flexcit recognises the ‘Brussels effect’ on p.187 but seems to ignore it almost everywhere else: often it’s the EU that leads the global bodies. The Brussels effect essentially notes that even superpowers (America) follow EU product regulations in areas where the EU has legislated first due to the size of its market. This applied to important sectors such as aeronautics and monopoly law.
    This would be far more noticeable for the UK than for America (as the Bradford paper discusses), especially following the conclusions of TPP and TTIP, after which the UK will be ‘sandwiched’ between three blocs with converging regulations.
  4. It should not be overlooked that the EEA option does require tariffs on agriculture and fish products. Overall this may not be too bad, but it implies a serious hit to the trade along the Irish border. Presumably beef and potato imports from the Republic would become more expensive, as would Continental delicacies and alcohol. In my personal opinion this is not compelling argument against Brexit, but ought to be stated clearly.
    Norway has preferential tariff access for its fish into the EU but not zero tariffs. This implies the situation for British fishermen would be substantially worse than now: it is also unclear whether they would get better TAC quotas after Brexit. Haggling over fishing grounds and fisheries craters would be no simple business, and the UK may well sacrifice fisheries as it pushes for continued financial services access.
  5. Broadly speaking, Flexcit commits a lighter version of Dominic Cummings’ sin in saying Britain can be ‘flexible’ or can make a ‘democratic decision’ whenever there’s a tough question; in this way it avoids answering the most difficult challenges. It also displays a sketchy reliance on the future negotiation abilities of Britain in global bodies without proving that Britain would have such superhuman capability to anything like the required degree.

A problem that is not unique to Flexit is that of uncertainty. Because Vote Leave is not behind the model publicly, and neither are any remain MPs, the fact that eventually the country might end up in an EEA single market situation is probably not enough to reassure the markets after a close Leave vote. The possibility that it would cause a constitutional crisis, or at least continuation of bitter political disputes between British politicians before the issue is even raised with the EU and EFTA states, implies that UK stocks could take a hit.

To reiterate, I think the Norwegian option is the least bad Brexit option and would not be too terrible for the country. It has several advantages which are laid out in my earlier paper. However I personally am unconvinced by the case for leave so far. I do not believe the EU is a ‘prison’, and the Norway option is the best route to take if the EU ever got so bad that I thought Britain should leave it.

In the spirit of constructive criticism a version of these points was sent to Flexit proponents earlier this year.

If anyone is interested in me writing this in a shorter and more digestible form, get in touch on Twitter or by email.

 

Staying in the EU

My job for the last 3 years has been EU researcher at a London think tank. My work was mainly on the problems of the EU and the different options for leaving the EU – in short, what might be called Eurosceptic. They can all be accessed here for free.

Over the course of my time there I have become convinced that it is best for Britain to remain within the EU, although it certainly has its problems. I have now left Civitas.

Here are some of my reasons for supporting Remain.

Here is how I think the government could promote Leave-Remain reconciliation, and try to fix the EU’s problems, after a Remain win:

You could also argue this (by a colleague), which is mildly true but barely relevant:

David Cameron’s renegotiation efforts have changed the EU for the better

Here is how the EU would have to develop for me to consider pushing for another referendum and wanting to vote to leave.

I have a few more articles planned, but await people to pay me to write them.

I am happy to discuss my views further.

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The case for a British-led Greek bailout

I do not seriously think Britain’s austerian Conservative government has a snowball’s chance in Hellas of leading a Greek bailout. Cameron and Osborne have been dragged into contributing a small amount to an EU-wide measure, having kicked up a mighty fuss and received assurances that Britain’s contribution is underwritten.

Still, I think it’d be a good idea for this government to seriously consider leading a bailout. I would have the prime minister convene a debt relief conference with (if possible) contributions from America and Canada, both of which are in late-stage talks over trade deals with the EU, and if possible South Korea, South Africa and Mexico, all of which have free trade deals already.

The IMF, Centre for European Reform and eminent economists like Paul Krugman, Joseph Stiglitz, and Jonathan Sachs all say current the current situation is unsustainable and the measures the Eurozone is imposing on Greece in return for additional loans will ruin the country even more. Debt relief (pushing back repayments) now seems to be on the table, courtesy of Angela Merkel, but that is far off and contingent on full implementation of Eurozone model austerity. Merkel has categorically ruled out a haircut (debt write off). It’s far from an Obama-style stimulus package or Sachs-model shock therapy which could actually make Greece grow again. It won’t have any impact on the currency either, because Greece will remain locked into the euro while it grows less and less competitive.

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Scotland, don’t become strangers

Scotland,

The past few weeks you’ve shown more engagement, more humanity, more care about the things I wish we all stood up for, than ever. You’ve campaigned on both sides with passion, wit and intelligence, yet for such a momentous vote have been admirably amiable.

‘Project Fear’ is a bunch of crap, you’re right. Continue reading

Crimea voted ‘Out’. Yatsenyuk should offer East Ukraine the same choice

I wrote for Civitas:

Both Ukraine’s territorial integrity and Russia’s respect for the 1994 Budapest memorandum are dead in the water. The EU and Obama are powerless to stop further land grabs. Avoiding bloodshed and establishing stability is imperative.

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Sympathy for Peter Hitchens (or Why ‘Homophobe’ and ‘Racist’ are unhelpful terms)

Closet racists and loonies

–          Dave

When you get to the bottom of it, they are always racist.”

–          Gary

“…but I love brie and merlot. It’s a tough one.”

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