Bluffing with an empty hand

Theresa May's use of the phrase "No deal is better than a bad deal" in her Lancaster house speech was seen by some as an "unnecessarily provocative".

I never understood this. If we say "we will not leave without a deal", EU hears "a superficial deal will do, they're not really leaving". If we are not willing to say "No Deal" at any point, we will eventually say Yes to every EU demand. We will be casting ourselves upon the mercy of the EU- not a quality the EU is known for. A guaranteed "bad deal" scenario.

1) The full 100bn exit bill will be extracted, with no offset from any EU assets.

2) EU expats in the UK will be granted full EU freedom of movement and citizen rights, with ECJ jurisdiction and enforcement.

3) The EU will insist upon a border in the Irish Sea, with Northern Ireland having special status within the single Market and Customs Union - in effect separating Northern Ireland from the UK.

4) The EU's negotiating objectives insists upon "safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices". The EU's current grip on social, environmental and regulatory law will not be relaxed, and control will be extended further to cover taxation.

5) The EU have already demanded they retain current fishing access in UK territorial waters. Combined with the same SPS regulations and likely same laws over shoals crossing boundaries, we will have left the CFP in name only.

6) The EU will demand we follow all SPS regulations for agriculture. While we will be outside the CAP subsidy scheme, the EU will regard any divergence from current policy as "unfair competition". We will be in CAP in all but name.

7) Somewhat out of the public eye, the UK Government has signed up to 5 EU Defence Union initiatives since November (see Veterans for Britain  twitter feed and web site). With May's unconditional commitment on security, likely to be bound via an association agreement, we are being de facto signed up to Juncker's EU Army.

8) Foreign Policy. I also expect May's association agreement to encompass foreign policy co-ordination and commitment to the EU's foreign policy aims. It will be impossible to distinguish this from the current position under the EU's Common Foreign Policy.

9) Human rights law. At present we already have pro EU MP's demanding that May sign up to the EU's Fundamental Charter of Human Rights. I expect May's association agreement to also contain similar commitments. So much for repealing Blair's Human Rights Act or establishing a British Bill of Rights.

10) Contributions. Well at least we won't be paying £10bn per annum nett to the EU, you may think. Don't bet on it. The EU will extract commitments to funding EU agencies and bodies and also for generous grants to poorer states in the EU. I doubt there will be any significant savings at all.

11) Four Freedoms and homogeneity of EU law. The EU have repeatedly made clear that the four freedoms are indivisible. Nor are they going to let us diverge from EU law and participate in the Single Market. The EU's negotiating objectives state they will "effectively protect its autonomy and its legal order, including the role of the Court of Justice of the European Union." At the end of August, Michel Barnier stated UK requests were "simply impossible" as the EU must protect the integrity of the single market.  Barnier again emphasised this on the eve of May's Florence speech 

"It is not – and will not – be possible for a third country to have the same benefits as the Norwegian model but the limited obligations of the Canadian model. And naturally, any agreement must respect the regulatory autonomy of the EU, as well as the integrity of its legal order."

12) Free Trade Deals. Leaving the Customs Union will enable Britain to set and negotiate trade tariffs. But if we opt to retain single market benefits, which means full regulatory harmonisation (as discussed above the EU will not compromise on this), then we will be unable to secure meaningful trade deals on regulations and non-tariff barriers. The major obstacle for many trade partners is the EU's restrictive SPS regime, which blocks agricultural trade. The proposed Swiss-USA FTA foundered on this point. African farmers are excluded from EU market primarily by regulations and non-tariff barriers. If UK financial services remain bound by the EU's particularly restrictive interpretation of global finance regulation frameworks, there is no scope for liberalising trade in this sector with the Rest of  the World.

I think the above is the epitome of a bad deal. It will cost a huge amount of money and will leave us even more enmeshed in and under the control of, the EU. We will no longer have a voice in shaping the direction of the organisation which we would still be shackled to. EU expats in the UK will have legal rights over and above UK citizens enforced by the ECJ. The integrity of the UK is threatened by the EU's Irish border demands. Apart from tariffs there are no gains - we will have less freedom in all economic areas.

Surely the UK Government cannot sign up to anything like this, be it a Norwegian EEA deal or a Canadian FTA? Surely "No Deal" is better than this deal ? Yet that is exactly the trajectory the Article 50 talks are taking us. Why is this ? Lack of leverage. Contrary to May's rhetoric, it appears no preparations have been made for a No Deal scenario.

A report by the BBC's Christopher Cook concluded "government is not behaving like it is really preparing for No Deal - and the EU27 can surely see it.". Dominic Cummings has tweeted how failure to prepare for No Deal is a historic unforgivable blunder - it is hard to disagree. James Arnell, a partner at Charterhouse, in an article for Conservative Home, laments the lack of progress to date and calls on Brexiteer MPs to provide an ultimatum to Mrs May and her government to "demand a proper Brexit plan which is deliverable with or without the cooperation of Brussels".

The failure to prepare for "No Deal" is criminally negligent. May has been bluffing with an empty hand. A disastrous approach which has undermined Britain's negotiating position.  The Government must act urgently to revitalise the government machinery for delivering Brexit. Above all, with just 18 months to go,  a "No Deal" contingency plan should have been prepared and already in the process of implementation. Bureaucratic inertia and delay can be tolerated no longer.

Flexcit reality check

Simon Nixon's recent Times article "Norway option is not the long term answer to the problems posed by Brexit", drawing heavily on Jean-Claude Piris's article for E!Sharp magazine, has caused a flurry of discontent among proponents of the EFTA EEA option.

Most notably unhappy are Flexcit supporters who propose a permanent EFTA EEA option which they believe can then be amended/reformed to meet our Brexit objectives. I was a Flexcit supporter, until the scales gradually fell from my eyes - a process that started spring 2016 and completed after the Referendum. For me the Nixon/Piris article covered some (of the many) issues I discovered in my journey away from Flexcit.

Freedom of Movement

The EEA Agreement encompasses the EU's "four freedoms", including Free Movement of People. This is often seen as the Achilles heel of the Norway / EFTA EEA option.

Article 112 of the EEA agreement states that where "serious economic, societal or environmental issues arise",  safeguard measures can be used, limited to "what is strictly necessary in order to remedy the situation". Flexciteers claim that these could be used "unilaterally" by Britain to limit freedom of movement. Liechtenstein is quoted as an example of an EFTA EEA country that has imposed immigration quotas via Article 112 safeguard measures.

In 1995, prior to Liechtenstein's EEA accession, the EEA Council recognised that Liechtenstein was a "small inhabitable area of rural character with an unusually high percentage of non-national residents and employees" and effectively pre-authorised the use of safeguard measures assuming no other solution was found. Liechtenstein did not act unilaterally.

As Piris points out that there is no precedent for "unilateral" action, and Britain can hardly expect to gain similar free movement concessions as a tiny, rural, land-locked micro-state like Liechtenstein. Should Britain take the unilateral route, it will be subject to "rebalancing measures"  by other EU/EFTA states under Article 114 of the EEA agreement, i.e. retaliatory measures such as limiting Britain's access to the Single Market by suspending the Financial services passport for example (as suggested on Steven Peers' EU Law Analysis blog).

Still Pay, No Say?

Inevitably there are complaints that the article simply repeats the "still pay, no say" mantra from the Remain campaign. Nixon states that EEA members "contribute to the EU budget". Strictly speaking, Norway pays for participation in EU agencies and selected EU programs, as well as directly funding poorer Eastern bloc EU states via the EEA and Norway grants system. However, it is true to say that without such payments, Norway would not participate in the Single Market. EEA will come with a price tag.

Norway does have "a say" over EU law applying to the EEA agreement - early consultation when EU legislation is first presented to EU Council and observer status on committees. But at best, this is similar to Britain's current status minus voting rights - it cannot be considered an improvement.  

Nixon/Piris point out that post-Brexit Britain could not expect more say over EU law than Norway - no special rights of consultation, recognition of differing British standards, opt-outs on certain legislation. This would put Norway's nose out of joint (whose vote we would need) and more importantly undermines the fundamental EEA principle of homogeneity.

In any case, a key reason for Brexit was the undemocratic nature of the EU and the largely unfettered legislative power of the EU Commission.  How much say Norway has compared with Britain as an EU member state is rather a moot point - it's negligible in either case. We're leaving the EU because we didn't buy the "influence" argument.  The problem with the Norway option is it still leaves us subject to EU legislation.

EEA democratic reform ?

Optimistic EEA supporters (Flexciteers) suggest the EEA could be reformed to create a more democratic "single market of equals" and even devolve legislative power to other intergovernmental organisations. Nixon/Piris scotch that idea -  the ECJ has previously struck down earlier versions of the EEA agreement that gave too much influence to non-EU states.  If anything, the EU might seek to lash the EEA even tighter to EU law. 

Flexciteers cite UNECE WP.29 (world forum for harmonisation of motor vehicle regulations) as an example of the EU ceding legislative power to UNECE. The truth is that this forum has been the basis of European vehicle regulations since 1958 - with many EU member states involved on their own initiative. In 1998, the EU became a contracting party, and required EU member states to sign up to UNECE regulations the EU negotiates and agrees (but allowing member states to retain their own initiative in regulations not covered by EU agreement with UNECE). Since then, the EU has steadily increased its control over member states and now claims sole competence to speak and vote on behalf of member states at WP.29, giving it a block vote of 28, (soon to be 27). Rather than ceding power, the EU has executed a power grab over member states and now has a dominant position in WP.29. 

Juncker's recent "state of the Union" speech stated "trade is about exporting our standards, be they social or environmental standards, data protection or food safety". EU power is centred on its acquis (body of law) and it's ability to impose its acquis on others. Can anyone seriously believe the EU is going to cede legislative power? EFTA EEA is primarily a mechanism for extending EU law to EFTA states - the only reform the EU will be interested in will be to strengthen its grip.

This is precisely my fear regarding Flexcit - in seeking reform of EEA, the EU response will be to simply dust off the Verhofstadt/Duff Associate Membership plan. EEA states becoming associate members will get voting rights in EU law applying to them, but at the price of accepting this EU law having direct effect and primacy in national legislation - as per EU membership.  Verhofstadt/Duff tellingly describe EU associate membership as a "parking place for those states not yet ready for full integration".

EEA is not a given for Britain

The crucial observation by Nixon/Piris is that far from being a ready-made, off-the shelf Brexit option (as Flexciteers have claimed in the past), British membership of the EEA would face a number of immense political obstacles.

• As a matter of process (Brussels does love its process), Britain has to leave the EU first, then apply to join EFTA and re-join the EEA.
• The application to re-join EEA will be "mixed competence", requiring unanimous ratification by all EU states and regional parliaments, so is potentially vulnerable to a regional veto (as per CETA and Wallonia).
• Unanimous consent from the EFTA EEA states is also required. Norway's consent cannot be taken for granted. Norway's position as EEA top dog will be taken by Britain. Norway's political class is pro-EU and still harbours ambitions to join the EU - they will be very ambivalent about Britain joining the EEA.
• All of this means that a transition arrangement is needed just to achieve the EFTA EEA option.

Conclusion

It's unsurprising that supporters of the EFTA EEA option are critical of Nixon/Piris. They will argue that failure to invoke Article 127 of the EEA agreement (1 years notice to quit) means Britain automatically retains full Single Market Membership (although I dismissed this idea in an earlier post and Lawyers for Britain have also written a good critique). They will insist that the Liechtenstein option must be applicable for Britain (despite plenty of critiques, including a very good critique from Civitas). They will continue to believe that Britain can opt-out of troubling legislation, despite the fact that the EEA is founded upon homogeneity of law (EU law at that).

But Piris cannot be dismissed so easily. As a former director-general of the EU Council’s legal service, he is not lacking in knowledge or expertise.  Even if you think his view slanted, it is highly likely that his thinking represents Brussels thinking. The EU believes Britain cannot automatically retain Single Market membership. Are supporters of the EEA option proposing we will fight and win a legal challenge against the EU on this point ?

It follows that EU agreement is needed to make the EFTA EEA option feasible and so the EU will dictate the terms. The EU is not going to let Britain drive a coach and horses through the four freedoms and homogeneity. The EU is smart enough to head off any such attempts via counter-measures already in the EEA agreement and if need be by extracting additional commitments from Britain via the Article 50 Withdrawal treaty.

Supporters of the EEA option and Flexciteers tend to call other Brexiteers "fantasists". Yet it seems Flexcit is the biggest fantasy of all - the notion that we can shape the EEA to whatever we want. This is why I describe the Nixon/Piris article as a reality check for Flexcit. The only EFTA EEA option on offer will be "as-is" - continued EU law and free movement of people. The only reform on offer will be further entanglement via EU associate membership. It is time to ditch the Flexcit fantasy.

Barnier on Mutual Recognition

The press conference speech by Michel Barnier following the third round of Article 50 negotiations  sparked plenty of confusion and debate, in particular the following comments:

".. protecting the EU legal order and protecting the integrity of the Single Market are core principles of my mandate. The UK decided to leave the European Union. The UK government decided to leave the Single Market and the Customs Union. We respect this sovereign decision. The Single Market, the EU capacity to regulate, to supervise, to enforce our laws, must not and will not be undermined by Brexit.

The UK wants to take back control, it wants to adopt its own standards and regulations. But it also wants to have these standards recognised automatically in the EU. That is what UK papers ask for. This is simply impossible. You cannot be outside the Single Market and shape its legal order."

Further to that, Barnier said some of the recent British proposals showed “a sort of nostalgia in the form of specific requests which would amount to continuing to enjoy the benefits of the single market and EU membership without actually being part of it”.

What does he mean ? Several alternative interpretations have been discussed:

1) The initial response was that Barnier was ruling out mutual recognition, despite the fact that the EU has mutual recognition agreements with numerous third countries. These agreements recognise third country Conformity Assessment Bodies (CABs) as competent to test products against EU standards  (and vice versa) and issue certificates of conformity.

Agreements on conformity assessment do not imply or require regulatory harmonisation - each party will maintain different standards and regulatory regimes. There is no recognition of each other's standards, merely a recognition of CAB's in each others territory. This means exported products undergo an assessment against relevant third country standards for export to the said third country, which is separate and different from the assessment undertaken for the domestic market.

2) It was then suggested "automatic mutual recognition of *divergent* regulations & standards" was the issue. But it's not clear the UK Government has suggested or is asking for such a thing. Certainly, there will be cases where the UK seeks mutual recognition of equivalent regulations with the EU - in line with existing EU-third country precedents.

The most obvious case is  agriculture / SPS regulations. Switzerland has an agriculture equivalence agreement with the EU which waives all border inspections for EU-Switzerland trade in agriculture. Although not in the single market, Switzerland informally harmonises its SPS regulations with the EU's. The EU also has agricultural equivalence agreements with other third countries (e.g. Chile, New Zealand) who are not fully harmonised with EU SPS regulations, but the EU has deemed the third country SPS regime sufficiently equivalent to allow much lower rates of border inspections.

In a recent paper on Data Protection, the UK Government has indicated it will seek to build on "adequacy" provisions in the EU's Data Protection law. The EU Commission can deem third country data protection standards are "essentially equivalent" to EU standards - countries such as Argentina,  Israel, New Zealand, Switzerland, Uruguay already have "adequacy" agreements with the EU.

It seems clear to me that Britain is seeking equivalence agreements based on existing EU-third country precedents. Of course, these require a continued close alignment or harmonisation of regulations - divergence will cause some or all of the agreement benefits to be lost. As far as I can see this is fully understood and I see no evidence that Britain is trying to circumvent that principle.

3) A clue to another possible explanation is in Barnier's reference to "recent UK papers / proposals". "Continuity in the availability of goods for the EU and the UK" was published by the UK Government on 21st August, effectively responding to the EU's paper  "Goods placed on the Market under Union law before the withdrawal date" published 28th June 2017.

The EU paper limits continued free movement of goods to those placed on the single market before the withdrawal date.  Market authorisations (for biocidal, plant protection and medicinal products) will need to be transferred to another competent national authority (i.e. within EU territory). Market surveillance co-operation and exchange of relevant information will cease on withdrawal date (with a case made for continued communication on goods already placed on the market).

The UK paper also proposes continued free movement of goods placed on the single market before the withdrawal date, But the paper also suggests business should not have to repeat compliance activities undertaken prior to exit. Type approvals, certificates and registrations issued prior to exit should remain valid. This is no small matter. Transferring authorisations on medicinal products to an EU-based authority is an expensive business (fees start at  approx. €280,000 per product) . Existing Car type approvals may be at risk, with a cost of £500,000 per model to re-test. The paper emphasises this proposal is set in the context of a smooth transition to a future relationship with the EU.

Here I think we see the heart of the problem. Although Article 50 calls for the withdrawal agreement to be concluded "taking account of the framework for its future relationship with the Union", statements from Barnier and the EU (on mutual recognition and availability of goods etc.) are based on application of EU law to Britain as a third country without any UK-EU agreements in place. It is as if Barnier/EU view the future relationship as no relationship at all. The EU stance to Britain is leave first, paying your exit bill, and then we may consider some trade arrangements.

However, while the EU cannot be compelled to enter into a Free Trade Agreement (FTA), it will be a lot harder to refuse requests for mutual recognition agreements.  The EU is a signatory to the WTO TBT agreement and Article 6.3 "encourages" members to enter into agreements on conformity assessment. Similarly, WTO SPS Agreement Article 4 "encourages" members to enter into agreements on agriculture and SPS measures. Also, WCO (World Customs Organisation) recommend members enter into AEO mutual recognition as part of its SAFE Framework (see page 28 of WCO SAFE Framework 2012 and section 5.5 on page 54 of WCO SAFE Framework 2007).

Conclusion

Claims that Britain is trying to enjoy the benefits of the Single market after it has left seem wide of the mark to me. Britain is seeking mutual recognition and equivalence agreements based on existing EU-third country precedents and is clearly seeking a smooth transition. Barnier is ignoring the EU's commitments to removing trade barriers in various international treaties and its own treaty. Moreover, such agreements will be of mutual benefit: protecting EU supply chains reliant on UK goods and protecting EU traders who export to the UK; costs for market authorisations and type approvals will apply in both directions.

Responses to Barnier's comments ranged from Hard Brexiteers saying "walk away now" to the usual Remain suspects praising  Barnier/EU and condemning Davis/Britain.  Portugal's former Europe Minister Bruno Macaes tweeted that Barniers' comments contradict the EU's position on trade:

• For years the EU has stated that the "advantages" of the EU's single market can be enjoyed by third countries, as part of a more "Global Europe". 
• In negotiations with the US for TTIP the goal was "frictionless" trade, which Barnier deems impossible for the UK.
• Mutual Recognition is on the table in EU trade deals and is included in CETA, yet Barnier rules it out of future UK-EU relationship.

For myself, I think Barnier's comments are another manifestation of the impasse on exit bill versus trade talks arising from the EU's strict sequencing. Open Europe's Pieter Cleppe takes the view that the EU will have to start talking about trade soon - I hope he is right.