tag:blogger.com,1999:blog-81569727738010798962024-02-02T02:42:21.144-08:00My10MinuteBlogPaul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.comBlogger40125tag:blogger.com,1999:blog-8156972773801079896.post-68576616057169242662018-12-29T18:20:00.002-08:002018-12-30T12:11:45.433-08:00Trading under WTOA common riposte to the WTO option is "no country trades purely on WTO terms". Often they point to the USA as an example of a country that does not have a Free Trade agreement (FTA) with the EU, but has numerous other agreements with the EU. A search of the EU Treaties Database does indeed reveal 147 treaties associated with the USA. But how much do they improve upon "trading under WTO" ?<br />
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<i><u><b>Multi-lateral Treaties</b></u></i><br />
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Of the 147 treaties listed, 85 are multi-lateral, that is to say international treaties with additional signatories beyond EU & USA, typically via international organisations. Many of these treaties do not relate to trade, e.g.: Euratom; UN treaties (Climate Change, Environmental, Transnational Organised Crime etc.); Fisheries conservation & management; World Health Organisation (WHO) etc.<br />
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<div>
A large number of multi-lateral treaties are with international organisations which form part of the framework of international treaties that constitute "trading under WTO" (and a post-Brexit UK will remain a party to such agreements), e.g.:</div>
<ul>
<li>International Civil Aviation Organisation (ICAO)</li>
<li>International Plant Protection Convention (IPPC)</li>
<li>World Intellectual Property Organisation (WIPO) </li>
<li>UNECE - 1998 agreement on global technical regulations for wheeled vehicles & parts.</li>
<li>World Customs Organisation (WCO)</li>
<li>World Trade Organisation (WTO)</li>
</ul>
The EU treaties database also allows a search on "nature of agreement". There are 4 multi-lateral treaties listed as "trade" agreements:<br />
<ul>
<li>Two multi-lateral trade agreements cover international co-operation to promote sustainable expansion of trade, especially for developing nations: Grains (Grains Trade convention 1995) and Coffee (International Coffee Agreement 2007) As such these treaties form part of the international framework which constitutes "trading under WTO".</li>
<li>Two multi-lateral trade agreements commit the EU, USA & other parties to amending their WTO schedules to eliminate tariffs on trade in Civil Aircraft (WTO pluri-lateral treaty with 30 signatories) and Multi-Chip Integrated Circuits (signed by members of Government/
Authorities Meeting on Semiconductors). All WTO members will benefit from these tariff eliminations, including post-Brexit UK. Adjusting your own WTO tariff schedule is a defining characteristic of "trading under WTO".</li>
</ul>
<ul>
</ul>
<i><u><b>Bi-lateral Treaties</b></u></i><br />
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<div>
There are 62 bi-lateral EU-USA treaties listed. Some are related to Euratom. Many do not relate to trade, covering co-operation on security, scientific / technological, legal assistance, education / vocational training etc.<br />
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A bilateral to coordinate energy-efficiency labelling of office equipment is listed under "technical harmonisation". This allows <a href="https://ec.europa.eu/energy/en/energy-star">EU participation in the US's Energy Star programme</a>, a voluntary scheme to provide customer information on energy efficiency of products. As such, this agreement does not provide improved trading terms or market access. In any case, this bi-lateral expired on 20 February 2018.<br />
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Two bi-laterals listed under "competition law" relating to positive comity, defining a process to determine which party should take enforcement actions in a competition law case. Again, these agreements do not provide improved trading terms or increased market access.<br />
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There are 20 "trade" bi-laterals listed, but many of these are essentially "trading on WTO terms" :<br />
<ul>
<li>EU & USA agreement to modify their respective WTO schedules in order to eliminate tariffs on certain alcoholic spirits.</li>
<li>WTO dispute settlements (EU support for EU producers of Oil seeds; effects of EU preferential agreements in the Mediterranean region; cereals & rice; EU export refunds for pasta).</li>
<li>USA agreement to modified EU WTO schedule for tariffs & quotas following EU expansion (EU12 to EU 15 and EU15 to EU25) </li>
<li>EU & US agreement to modify their respective Appendix I of 1994 Government Procurement Agreement (a WTO multi-lateral agreement).</li>
<li>Administrative co-operation to prevent diversion of substances to illicit manufacture of narcotics is listed as "trade" but is essentially co-operation on fighting crime.</li>
<li>Trade in Wine agreement (2006) provides rules on GI's (Geographical Indications) and labelling of wine. As such, this agreement regulates labelling of wine (and provides some commonality) but does not enable EU-USA trade in wine per se - clearly wine was traded freely between EU & USA prior to 2006.</li>
</ul>
All of which means that of the 147 treaties listed in the EU treaties database pertaining to USA, none of the multi-laterals and only a handful of EU-USA bi-laterals provide trade terms or market access over and above "trading under WTO", i.e. :<br />
<ul>
<li><a href="http://agridata.ec.europa.eu/reports/Allocation%20Coefficients%20TRQs-Import.pdf">Agricultural Quotas</a>: Modification of EU schedules following EU expansion refer to EU agricultural tariff rate quota adjustments. Most EU agricultural quotas are "erga omnes" (open to all), but some are identified as US country-specific (covering Beef/Veal, Cereals, Rice, Poultry, Pigmeat). There is also a specific agreement on varying Husked Rice Tariff according to volumes imported.</li>
<li><a href="https://ec.europa.eu/food/safety/international_affairs/trade/agreements_en">Sanitary Equivalence</a>: (1999 & subsequent amendments). Although a few limited areas of equivalence have been established, USA meat/dairy is still subject to full third country levels of border veterinary inspections for live animals and animal products (see <a href="http://apha.defra.gov.uk/documents/bip/manual/bip-manual.pdf">Border Inspection Post Manual</a> page 30). </li>
<li><a href="https://ec.europa.eu/growth/single-market/goods/international-aspects/mutual-recognition-agreements_en">Mutual Recognition Agreements (MRAs)</a>. The original 1999 MRA on conformity assessment covered 6 sectors, but to date only 2 are operational (EMC, Telecoms). A 2005 agreement provides for mutual recognition of equivalence in marine equipment (where USA certificates of conformity are interchangeable with EU certificates). </li>
<li><a href="https://ec.europa.eu/taxation_customs/business/international-affairs/international-customs-cooperation-mutual-administrative-assistance-agreements/united-states-america_en">Customs Co-operation</a>: The original 1997 agreement provided for exchange of information & mutual assistance upon request. A subsequent agreement (2004) expanded this to cover the USA Container Security Initiative (CSI). The <a href="http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:144:0044:0047:EN:PDF">2012 mutual recognition of trade partnership programmes</a> ( i.e. EU Authorised Economic Operator (AEO) & U.S. Customs-Trade Partnership Against Terrorism (C-TPAT)) is the key agreement that provides practical benefits to importers/exporters, i.e. customs simplifications & trade facilitation.</li>
<li><a href="https://ec.europa.eu/transport/modes/air/international_aviation/country_index/united_states_en">Aviation</a>. Probably the most significant EU-USA bi-lateral is listed under "transport" , i.e. the EU-USA Air Transport agreement (aka "Open Skies"). It is worth noting that a post-Brexit replacement <a href="https://www.gov.uk/government/news/uk-and-us-agree-new-open-skies-arrangements">UK-USA Open skies agreement</a> has already been secured.</li>
</ul>
<div>
<br />
<i><u><b>Conclusion</b></u></i><br />
<br />
Analysis of the 147 treaties reveals only a handful of treaties provide improved trading terms or market access beyond "trading under WTO". Even then only to a limited extent. EU-US trade in goods is still subject to full WTO MFN tariffs (except for some agricultural quotas). Full third country regulatory barriers apply to trade in manufactured and agricultural goods, (except for three sectors covered by MRAs). Customs simplification is available but only to trusted traders and only since 2012.<br />
<br />
Apart from the EU-USA Air Transport agreement, none of the 147 treaties provide for improved trade in services. However, the EU has granted the USA <a href="https://ec.europa.eu/info/business-economy-euro/banking-and-finance/international-relations/recognition-non-eu-financial-frameworks-equivalence-decisions_en">equivalence decisions</a> regarding certain financial services (which simplifies compliance & prudential requirements), and a <a href="https://ec.europa.eu/info/law/law-topic/data-protection/data-transfers-outside-eu/adequacy-protection-personal-data-non-eu-countries_en">data protection adequacy decision</a> (which allows transfer of personal data from EU without having to put legal safeguards in place).<br />
<br />
The limited improvement on WTO trading terms for EU-USA trade (both goods & services) does provide pointers as to where UK will need to mitigate a "No Deal / WTO" Brexit. The good news is that there are mitigations for all these areas - which I will look at in subsequent posts.<br />
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</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com4tag:blogger.com,1999:blog-8156972773801079896.post-10647826022820733392018-12-20T06:24:00.001-08:002018-12-20T06:24:29.955-08:00Guest Blog - Economic Analysis of Single Market & Customs UnionHere's another thread from <span style="font-family: inherit;"><a href="https://twitter.com/DerrickBerthel1">@DerrickBerthel1</a> (Derrick Berthelsen) - this time looking at economic analyses which </span>attempt<span style="font-family: inherit;"> to </span>calculate<span style="font-family: inherit;"> the benefit of </span>single<span style="font-family: inherit;"> </span>market<span style="font-family: inherit;"> & </span>customs<span style="font-family: inherit;"> </span>union<span style="font-family: inherit;"> </span>membership for the UK.<br />
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1/ People are getting hot under the collar about economic forecasts when we all know how dreadful a record Economists have at forecasting - the only function of economic forecasting being to make astrologers or weathermen look respectable and all that.<br />
<br />
2/ A much more sensible, and I would think less contentious way of trying to work out the potential effect on economic output of leaving the single market and customs union should be to look at how much economic experts calculate the UK has gained as a member of the SM and CU<br />
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3/ After all, analysing actual events that have already occurred should be a darn side easier than forecasting what could happen to millions of different variables in the future.<br />
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4/ There have been lots of reports on this, but the National Board of Trade in Sweden below is a great place to start as they compared over a dozen different analyses to see how much the single market and customs union has added to EU GDP.<br />
<br />
5/ To quote the report’s author Erik Dahlberg <i>“The single market has been a significant enabler for economic growth in Europe. Since the methodologies differ across various analyses, comparisons are not easily done, but 2-4 per cent seems to be in the ballpark.”</i><br />
<i><br /></i>
6/ However, the benefits have not been uniform.<br />
<br />
7/<a href="https://www.bertelsmann-stiftung.de/en/publications/publication/did/20-years-of-the-european-single-market/"> In its 2014 report The Bertelsmann Stiftung</a> introduced a new method on how to account for the counterfactual scenario of ‘no single market’.<br />
<br />
8/ Its central finding was that increased integration of one EU index point generates a 0.08% increase in economic growth.<br />
<br />
9/ Using this figure, it compared the actual GDP per capita in 2012 to a counterfactual GDP per capita, assuming that each country’s European integration would have remained at its 1992 (pre-single market) level.<br />
<br />
10/ It found that the single market had been most positive for Germany (+2.3%) but that the effect on the Greek economy had been negative (–1.3%) – no surprise there then.<br />
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11/ As for the UK, membership of the single market and customs union had benefited the UK by an additional 1.0% of GDP.<br />
Not 1% per annum. 1% in total.<br />
<br />
12/ That benefits have not been uniform across the EU should not come as a surprise. All analysis of the single market shows that the biggest benefit has been an increase in internal EU trade in goods.<br />
<br />
13/ Indeed, the UK is unusual as a member of the EU because it exports more to non-EU than to EU countries.<br />
<br />
14/ The UK is also the member state with the lowest trade integration in the single market for goods. (See <a href="http://ec.europa.eu/internal_market/scoreboard/">EU internal market scoreboard</a>)<br />
<br />
15/ Plus, of course the UK is a much more service-based economy than the rest of the EU and as the EU itself admits there is no ‘single market in services’ in any meaningful sense of the term. (See <a href="http://openeuropeblog.blogspot.com/2013/10/we-cant-complete-eu-single-market-in.html">Open Europe blog</a>)<br />
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16/ So, if the single market and customs union have only added 1-2% to the UK economy at best. Why would economists forecast that in the long-term economic growth would fall much more than that?<br />
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17/ Sure, there may be some short-term disruption effects on growth, but in the long term, why should UK GDP lose more from leaving the single market and customs union than it gained as a member?<br />
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The actual economic FACT not FORECASTS suggests that leaving the SM and CU will have only a marginal effect on UK GDP in the long run and thus that this alone is not a good reason to fear even a No Deal Brexit<br />
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<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-89313875392335219202018-12-18T13:29:00.000-08:002018-12-18T13:29:16.475-08:00Guest blog - Brexit Economic ForecastsIn a recent blog post, I referenced some excellent Twitter threads from @DerrickBerthel1 (Derrick Berthelsen). I've been so impressed that I asked Derrick if he'd mind if I posted some of his threads on this blog. I'm delighted to say Derrick agreed.<br />
<br />
Here's his thread in response to a tweet noting how Brexit economic forecasts tend to have lower GDP from lower immigration (i.e. a smaller population) and does not amount to lost GDP per capita.<br />
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1/ Precisely. I have looked at lots of Brexit economic models and in all a significant proportion of the forecast loss of GDP growth has come from lower immigration numbers<br />
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2/ For example, if we look at <a href="https://www.niesr.ac.uk/sites/default/files/publications/NIESR%20Report%20Brexit%20-%202018-11-26.pdf%C2%A0">NIESR’s recent forecasts</a> made for the People’s Vote<br />
<br />
3/ It estimates that, on a Managed No Deal basis, UK GDP will be 5.5% lower by 2030 than it would have been had we stayed in the EU.<br />
<br />
4/ However, its forecast for GDP per capita is only 3.7% lower - thus 1.8% of the lower growth comes from forecasts for lower immigration alone.<br />
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5/ NIESR informed me that the single biggest factor in the 5.5% (lower GDP) figure was their forecast for lower productivity from leaving the EU - the impact of lower productivity alone represents 3% of the 5.5% forecast decline.<br />
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6/ This means that just two variables – lower productivity and lower immigration are responsible for 4.8% of the lower growth forecast.<br />
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7/ Or look at it another way – the forecast for the loss in GDP driven only by the loss of single market and customs union access / increased friction is only 0.7%.<br />
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8/ This figure is logical as it broadly equates to the 1.0% GDP gain that the <a href="https://www.bertelsmann-stiftung.de/en/publications/publication/did/20-years-of-the-european-single-market/">Bertelsmann Stiftung estimates</a> the UK has gained from single market and customs union membership.<br />
<br />
9/ Another example of this is Panmure Gordon’s model which forecasts UK GDP to be c.5% lower in 2030 than previous pre-Brexit forecasts.<br />
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10/ Simon French, chief economist of Panmure Gordon stated "This mainly hinges on a reduction in long-term net migration to 105,000 a year and sustained trade diversion through non-tariff barrier differentiation and heightened administrative burdens from a loss of customs union."<br />
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11/ What I think this illustrates is that the actual “guaranteed” economic effect from leaving the single market and customs union – the limited but nevertheless real increased trading friction and unwinding of some supply chains etc- is actually minimal. 1-2% at most.<br />
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12/ The rest of the forecast decline is a matter for future policy decisions<br />
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13/ For example. Immigration - lower immigration may well be a function of the Brexit vote but it is not a necessity of it. The British people may decide that lower growth is a price that they are prepared to pay for less migration.<br />
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14/ Or they may decide in a few years that now the UK has control of the numbers and can determine the type of immigration by skills rather than geography they are content with higher numbers.<br />
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15/ And as for Productivity. UK productivity is currently c.25% below the best of our G7 peers. (<a href="https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2016">Link: ONS data</a>)<br />
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16/ Leaving the EU and being able to make our own rules and regulations, trade policies etc will enable the UK to focus on policies designed to improve productivity and hence economic growth.<br />
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17/ Indeed, if we look only at AI & Robotics if the UK get's policies right here alone the effect would be huge especially as UK only just behind China & the US according to the <a href="http://dka.global/ai-in-uk">Big Innovation Centre and Deep Knowledge Analytics report</a>.<br />
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18/ In his <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/655570/20171027_MadeSmarter_FINAL_DIGITAL.pdf">October 2017 Government report</a>, Professor Juergen Maier estimated that the “Fourth industrial revolution” could add over £455bn to the UK economy and create over 175,000 jobs if implemented correctly.<br />
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19/ PWC in its <a href="https://www.pwc.co.uk/economic-services/assets/ai-uk-report-v2.pdf">June 2017 report</a> estimated that UK GDP will be up to 10.3% higher in 2030 as a result of AI – the equivalent of an additional £232bn.<br />
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20/ Accenture and Frontline Economics in their <a href="https://www.accenture.com/t20171005T065828Z__w__/us-en/_acnmedia/Accenture/next-gen-5/insight-ai-industry-growth/pdf/Accenture-AI-Industry-Growth-Full-Report.pdfla=en?la=en">2016 report</a> estimate that AI will boost the UK economy by at least 1.4% by 2035<br />
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21/ The long-term economic impact caused by the additional trading friction from leaving the single market and customs union is not large (1-2%). Much more significant are the opportunities to the UK of getting our policy framework right as an independent state.Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com1tag:blogger.com,1999:blog-8156972773801079896.post-87207107280073884072018-12-16T11:46:00.002-08:002018-12-16T11:51:26.804-08:00What if No Deal is not that bad ?<br />
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For the last 3 years we have had numerous Government / Treasury / Civil Service economic forecasts of doom regarding Brexit, which have been proven hopelessly wrong regarding the post-Referendum period. One longer term forecast leaked earlier this year has been been used to undermine the case for a "clean" Brexit, with a lurid headline of 8% less GDP in a WTO scenario (see above).<br />
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In fact this is 8% less GDP by 2030, i.e. slower growth, not recession. But this figure is only arrived at by using grossly exaggerated assumptions for non-tariff barriers (NTBs) outside the Single Market & Customs Union. Let's have a looks at these numbers.<br />
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<i><u><b>Tariffs</b></u></i><br />
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EU trade weighted average tariff is indeed 4.5%, but is just 2.3% for industrial goods (i.e. stripping out agri-food). The UK trades at greater than 3:1 deficit with EU in agri-food, so in a WTO scenario the major impact would be on our consumption and imports. But there are plenty of countries who would jump at the chance to supply UK with tariff-free food, especially meat (where tariffs tend to be highest). The UK could solve its Tariff Rate Quota (TRQ) disputes at WTO by offering more generous TRQs to the relevant parties . So it seems to me the tariff impact of a WTO scenario would be significantly mitigated via agricultural quotas with third countries.<br />
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<i><u><b>Customs NTBs</b></u></i><br />
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The figure of 5.6% for Customs Non-Tariff Barriers strikes many observers as high. A <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/32470/11-1102x-trade-facilitation-uk-issues.pdf">2011 Government Paper on "Trade Facilitation"</a> quotes <i>"for the UK ... the estimated tariff equivalent of the
time taken to trade across borders is around 4.2%" (page 7), </i>based on trade with non-EU countries.<i> </i><br />
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But this figure includes inland transport, which is obviously a cost today for trade with the EU. As the paper also quotes <i>" If inland transport costs are excluded, the TF costs are 2.3%"</i>, which is the cost that will be added to trade with the EU post-Brexit. Note also that the 2.3% figure covers "<i>Customs Clearance and <b>Technical Control</b></i>", i.e. border checks for health & safety, regulatory compliance etc are included.<br />
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The government paper also refers to a 2009 study of the clothing and footwear sector – a sector which accounts for around 5% of UK’s external trade, but around 30% of all Customs Declarations. The study provided some interesting observations on current trade barriers as an EU member (which we would have scope to improve post-Brexit):<br />
<ul>
<li>complexity & difficulty of: EU tariff, Intrastat (reports trade within EU), complying with rules of origin and duty relief scheme.</li>
<li>One of the most effective ways of removing some of these regulatory barriers is to eliminate the tariff themselves, thus removing much admin as well as the tariff payment</li>
<li>many regulations affecting UK traders–around 93% of the overall burden - emanate from Europe, and it has proved very difficult to reform trade regulation at the EU level</li>
</ul>
<i><u><b><br /></b></u></i>
<i><u><b>Access & Regulation NTBs</b></u></i><br />
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Then we come to "access & regulation" barriers which have been estimated as a whopping 20.3% in a WTO scenario. This figure seems wildly overstated, especially as border regulatory checks is already covered in customs NTBs above.<br />
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As I covered in an earlier <a href="https://my10minuteblog.blogspot.com/2018/07/breaking-impasse-part-2-ditch-common_15.html">blog on the Common Rule Book</a>, most of the gains from the single market comes from use of common standards (which of course we can maintain voluntarily) allowing a single design, manufacturing & assessment process for both UK & EU markets. The impact of leaving the single market then amounts to a one-off relocation of individuals/roles to fulfill the requirement for an EU/EEA based importer/representative, and a very low risk of border regulatory checks (already included in the Customs NTBs estimate).<br />
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Do significant barriers to services trade arise ? Financial Services have relocated a very small number of "front-office" jobs to EU related to Retail activities. Wholesale activities, where the City makes it's money, are unaffected. The great majority of business & legal services exports are via companies who already have an EU/EEA presence. The few hundred lawyers who need continued access to the EU Lawyers Directive are qualifying for the bar in Dublin. In short, the picture fits the consensus there is no significant single market in services.<br />
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Agri-food, specifically meat/dairy, is the sector that will face highest regulatory barriers, especially meat/dairy. Firstly, UK approved establishments have to be re-listed by the EU as third country establishments. After that, meat/dairy exports will face border veterinary inspections. (100% paperwork checks, physical veterinary inspections according to product, some products at 50%). Of course these sectors attract the highest tariffs and so are already impacted by tariff barriers under the WTO option before considering the regulatory barriers. What this does show is that the main No Deal mitigation will need to be supporting meat/dairy exporters, diverting their produce to domestic markets while developing a long term plan.<br />
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The estimated size of the "access & regulation" barriers to trade with the EU would only make sense if the UK had completely de-regulated and/or switched to a completely different set of regulations (e.g. US regulations). Yet the government estimate has only minimal gains from de-regulation and a Free Trade agreement (FTA) w/ USA. This implies we would have completely overhauled our regulations for no gain - so why do it ? It is far more likely that divergence from EU regulations will be gradual and limited, thus minimising regulatory barriers to trade with the EU in the short to medium term.</span></div>
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<i><u><b>GDP Impact</b></u></i><br />
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It seems to me that a tariff impact mitigated by TRQs with RoW agricultural suppliers, plus a realistic assessment of non-tariff barriers (based on the Government report), puts the equivalent tariff impact at about 7%, not 30.6% as claimed by the government forecast. That would translate to a GDP impact of about 1.5%.<br />
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It's also worth noting the Government estimate cites lower immigration resulting in 1.2% less GDP. Post-Brexit, immigration policy will be entirely for us to decide, so it is misleading to count this as a consequence of leaving the EU. Most people want "controlled" immigration focusing on high-skill, high-wage labour, which is hardly likely to make us poorer (quite the opposite). But of course increased population via mass migration means a larger economy, even if no-one is any richer.<br />
<br />
A newcomer to twitter, Derrick Berthelsen, produced a sublime twitter threads on Brexit economic forecasts and how they are dominated by assumptions on immigration & productivity rather than direct trade impact from leaving single market & customs union (<a href="https://twitter.com/DerrickBerthel1/status/1067818324959088641">link</a>). He followed this with a thread looking at historical economic data (<a href="https://twitter.com/DerrickBerthel1/status/1068143951826296837">link</a>). He references the EU commission's own estimate (2% GDP gain averaged across all EU member states) and the Bertelsmann Stiftung study UK gaining just 1% from single market & customs liberalisation since 1992. Derrick also concludes impact from leaving single market & customs union as 1-2% at most. I thoroughly recommend reading these thread and following Derrick.<br />
<br />
These forecasts assume reduced trade with EU is permanently lost economic activity, but in practice much of this trade/activity will simply be diverted to domestic and RoW markets. Ashoka Mody, visiting professor of international economic policy at Princeton University and former deputy director of the International Monetary Fund’s European and Research Departments, <a href="https://www.independent.co.uk/news/business/comment/brexit-scare-stories-ashoka-mody-imf-bank-of-england-mervyn-king-economics-trade-a8670416.html">writes in the Independent</a>:<br />
<blockquote class="tr_bq">
<i>The economics is straightforward. When trade barriers between the UK and the EU go up, British producers will sell less to the EU and will sell more within the UK and to the rest of the world. </i></blockquote>
<blockquote class="tr_bq">
<i>No trade economist believes that the long-term cost of this shift in sales patterns is any more than 0.5 per cent of GDP. Throw in 2 to 3 per cent of GDP as <b>temporary </b>disruption costs. Estimates higher than that are ad hoc.</i></blockquote>
<div>
<b><i><u>Conclusion</u></i></b></div>
<br />
What if No Deal is not that bad ? The Government estimates of trade barriers associated with the WTO option look seriously over-cooked, even comparing with pre-Referendum government information. Using more realistic estimates the impact is only 1-2% GDP by 2030. And that is before allowing for mitigating effects of trade diversion, or gains from de-regulation or Free Trade Agreements. And it is still likely that a Free Trade Agreement would eventually be struck with the EU.<br />
<br />
This I suggest completely changes the political calculations. If No Deal / WTO is not that bad, then surely it is not "extreme" ? In fact there are many positives and opportunities associated with the WTO option - not least because it avoids the traps set in Article 50 negotiations and completely fulfils the EU Referendum mandate.<br />
<br />
It seems to me (and many observers) that we are still seeing Project Fear being deployed. The establishment's real fear is not economic impact, it is fear that we will actually be fully free from the EU. As per the headline of Ashoka Mody's article in the Independent<i> , </i>we should <i>"Ignore the Brexit scare stories - they have no basis in sound economics".</i></div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com3tag:blogger.com,1999:blog-8156972773801079896.post-63494787570305244032018-12-10T10:42:00.000-08:002018-12-14T11:00:29.197-08:00Worse than WTO<br />
Theresa May's <a href="https://ec.europa.eu/commission/sites/beta-political/files/draft_withdrawal_agreement_0.pdf">Withdrawal agreement</a> has been dubbed the "worst deal in history". Not least because of the NI backstop, which partitions the UK, locks us into a customs union, without an exit route. But that should not distract us from the other many and various unacceptable facets of the agreement:<br />
<ul>
<li>Paying £39bn we do not legally owe, with no guarantee of a future trade agreement.</li>
<li>Covertly signing up for EU Defence Union, including yet more UK cash contributions.</li>
<li>Continued role for ECJ as final arbiter.</li>
<li>Conceding on "Level Playing Field" and Geographical Indications with no guarantee of a future trade agreement.</li>
<li>Despite May's claims, the deal does not guarantee an end to EU Freedom of Movement,</li>
<li>etc. etc,</li>
</ul>
But it is strange to see some defend the deal on the basis it avoids the "cliff-edge" of leaving without a deal and trading on WTO rules. I can only assume they have not read and understood the terms of the backstop, which would leave UK in a much worse position than WTO<br />
<br />
<i><u><b>UK partitioned</b></u></i><br />
<br />
The backstop annexes NI into "the" EU's customs territory, separated from the rest of the UK. It's hidden away under layers of reference, but it is clear when you analyse Article 15 of the NI protocol.<br />
<ul>
<li><i>"the territory defined in Article 4 of Regulation (EU) No 952/2013"</i> (this article in the Union Customs Code defines the territory of the EU Customs Union by listing the EU member states) </li>
<li><i>"shall be read as including the part of the territory of the United Kingdom to which Regulation (EU) No 952/2013 applies by virtue of Article 6(2) of this Protocol." </i>(Article 6(2) of this protocol identifies the Union Customs Code as applying to NI).</li>
</ul>
Article 6 of the NI protocol speaks of a <i>"single customs territory"</i>. The same phrase is found in the <a href="https://www.avrupa.info.tr/sites/default/files/2016-09/Custom_Union_des_ENG_0.pdf">EU-Turkey Customs Union agreement</a>. But the backstop customs union comprises the EU customs territory (including NI, as per above) and the UK customs territory (excluding NI). NI is in "the" customs union, while GB is in "a" customs union. GB is only in the same customs territory as NI to the extent that Turkey is in the same customs territory as the EU member states.<br />
<br />
<u style="font-style: italic; font-weight: 700;">Third country trade barriers</u><br />
<br />
This is really a "bare bones" customs union between GB on one side and EU+NI on the other. So the GB-NI (and GB-EU) border will resemble the EU-Turkey border. Frictionless, it ain't.<br />
<ul>
<li>An Irish Sea VAT & Excise border is formed by Article 9 of NI protocol, which makes NI subject to EU VAT & excise law.</li>
<li>Full third country customs controls (i.e. as per WTO rules) will apply to trade between the two parts of the "single customs territory", i.e GB-NI trade and GB-EU trade (Annex 3 Art 1 of NI protocol).</li>
<li>Full third country regulatory controls (i.e. as per WTO rules) on goods traded between the 2 parts of the "single customs territory". The only concession EU have offered is that they'll try and do GB-NI checks away from NI ports. (Article 7 of NI protocol).</li>
</ul>
The "bare bones" Customs Union provides tariff & quota free trade within the <i>"single customs territory"</i> (although at present fish & aquaculture is excluded). Proof of third country purchases and duties paid is required so that the exporting customs authority can issue a "wet stamped" movement certificate (Annex 3 Article 8 of NI protocol). So the movement certificate is not an electronic document and must be physically presented to the importing customs authority. Frictionless, it ain't.<br />
<div>
<br /></div>
<div>
How much benefit is tariff-free trade in agriculture when GB exporters will still be faced with the EU's steep regulatory barriers, i.e. SPS checks / veterinary inspections at the border (especially for high tariff goods in meat/dairy sector) ? GB could of course reciprocate steep SPS barriers to imports of EU agricultural goods. Except that we depend on EU for most of our food imports and a "bare bones" customs union prevents us from sourcing tariff-free food from elsewhere in the world. What a ridiculous position to be in.</div>
<div>
<br /></div>
<div>
So all we really gain from a "bare bones" customs union is tariff-free trade in industrial goods, for which the EU trade weighted average tariff is just 2.3%. Which is outweighed by non-tariff barrier costs, not least the admin cost involved in the A.UK movement form.</div>
<div>
<br />
<b><i><u>Emasculated UK Trade policy</u></i></b><br />
<div>
<br /></div>
</div>
<div>
The "bare bones" Customs Union also means UK has to adopt EU's tariffs and trade defence measures. (NI protocol Annex 2 articles 3 & 4). We will have no independent trade policy and will be unable to agree our own FTAs. Nor will our exporters benefit from preferential access to third countries via EU's FTAs.<br />
<br />
But - all third countries with an EU FTA will get preferential access to GB market without having to reciprocate. A permanent built in disadvantage for GB traders. How is Liam Fox going to persuade the 50+ countries with EU FTAs to roll them over to a GB bi-lateral when they will get preferential access to UK for free by virtue of the "bare bones" customs union ? This a ludicrous position to be in.<br />
<br />
The idea that the "bare bones" Customs Union is uncomfortable for the EU is laughable. The EU bakes in its £100bn trade surplus, while preventing GB from seeking better trade terms elsewhere. The EU has all the leverage and none of the risk.</div>
<div>
<br />
<b><i><u>Worse than WTO</u></i></b><br />
<br /></div>
<div>
It amazes me that so many politicians who are scared of a so-called cliff-edge scenario in March 2019 seem to think the "bare bones" customs union backstop just 21 months later is perfectly acceptable. Exactly the same non-tariff barriers apply in both cases, mitigated only by saving industrial tariffs (averaging just 2.3%).<br />
<br />
When you also take into account the partitioning of the UK and emasculation of UK trade policy, it is clear that the "bare bones" customs union backstop leaves us in a much worse position than reverting to WTO rules in March 2019. Not to mention the small matter of £39bn bill, EU Defence Union, ECJ supremacy, Level Playing field etc. that comes with May's deal. Added to that, May's deal prolongs the uncertainty indefinitely, which is toxic for business and for our politics / governance.<br />
<br />
Nor is the backstop good for NI, given that 86% of NI's economy is based on trade within the UK internal market. A further 6% is based on trade with the Rest of the World, so 92% of NI's economy does not rely on the EU/RoI. Major barriers to GB-NI trade makes no sense at all for NI economy.<br />
<br />
It really does not matter whether the backstop is "temporary" or comes with an exit clause. May's deal is unacceptable and clearly the worst of all worlds - and still does not avoid a cliff-edge. It is much the better path to take the initiative and revert to WTO terms in March 2019. We can chart a new course taking advantage of the freedom we gain (and spare £39bn cash). Most importantly, outside the customs union, we would retain the freedom to seek better trade terms elsewhere, which is what the EU fears most and hence is our best leverage for eventually reaching a mutually acceptable deal.</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-68358922980641946542018-11-23T10:45:00.000-08:002018-11-23T12:21:36.226-08:00The NI border question<br />
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<br />
As we approach the Article 50 finishing line, the Northern Ireland (NI) issue still dominates. The Withdrawal Agreement agreed by May/Robbins still contains all the unacceptable elements of Barniers NI backstop proposal:<br />
<ul>
<li>NI will be subject to EU laws/ECJ, which as <a href="https://uup.org/news/5735/21/Northern-Ireland-s-constitutional-position-not-a-bargaining-chip-to-get-a-Brexit-deal-over-the-line-Nicholson#.W7ywV2hKiUl">Jim Nicholson (UUP MEP) writes</a> removes NI democratic rights and probably breaches Article 3, Protocol 1 of the European Convention on Human Rights (ECHR).</li>
<li>Trade barriers are imposed on GB-NI trade, both regulatory checks (NI buys 70% of its food from GB, which will now face full veterinary / SPS checks) plus NI will also be inside "the" EU's customs union and territory, while GB is in "a" bare-bones customs union, creating a GB-NI customs border as per Turkey's border with the EU. NI will effectively become a third country.</li>
<li>Escaping the backstop is solely in the gift of the EU. To date EU have refused to accept or even discuss any option beyond NI staying single market & customs union. There is no escape route.</li>
</ul>
<div>
This directly contradicts the <a href="https://ec.europa.eu/commission/sites/beta-political/files/joint_report.pdf">December Phase 1 Joint Report</a> (see excerpts above) and as such should be rejected by the UK. In fact, it will be better to rethink the whole NI border question based on principles in the December declaration : whole UK leaving Single Market & Customs Union, UK-wide alignment, No GB-NI barriers except via NI democratic consent.<br />
<br /></div>
<div>
<u><i><b><span style="font-family: inherit;">Single Market / Regulatory border</span></b></i></u></div>
<div>
<br />
The EU's stated priority is to protect the integrity of its single market, i.e. to prevent incursion of products that do not meet its standards. At the point of UK's departure, UK will still be fully aligned on harmonised European product standards (CEN/CENELEC) and food safety standards (applied to both domestic food and food imported from third countries). In terms of sectors requiring pre-approvals (chemicals, pharmaceuticals, cars etc) product registrations with UK agencies will be transferred to EU27/EEA based agencies. While UK remains aligned on product/food standards is there really any risk to EU's single market ?<br />
<br />
Barnier highlighted the need for checks on products. But again, while UK remains aligned on enforcement of standards (i.e.equivalent market surveillance and SPS inspection regimes), is there any need for additional checks ? Cross-border co-operation (both N-S and E-W) could be established under a UK-RoI bilateral, as provided for by Good Friday Agreement (GFA) Stand 3 para 10, so that the 2 jurisdictions can co-operate and trust each others checks. Is this any different in practice from Barnier's idea of dispersed checks / checks in the marketplace ?<br />
<br />
The EU have also complained that a UK-wide backstop offers UK cherry-picked access to the Single Market. But a UK-RoI bilateral could limit such benefits to UK-Ireland trade. Checks would still apply on UK-EU26 trade and EU could monitor GB-Ireland trade flows at GB ports to ensure Ireland is not being used as a backdoor to the EU26 market. This would amount to a swiss-style equivalence agreement for trade in goods between UK & RoI only, while UK remains aligned on product standards and enforcement regimes.<br />
<br />
UK divergence in any case is likely to be limited and gradual, so "managed divergence" would be a basis for continuing the UK/RoI arrangement. In many cases, clear product labelling / marking will identify divergent goods that can only be legally marketed in one jurisdiction. It is worth noting that the Swiss agricultural agreement allows swiss to import hormone beef (banned in the EU), subject to stringent labelling and controls on circulation, while still removing all EU-Swiss trade barriers in agriculture. In other cases, goods could be limited to GB and banned in NI, subject to NI democratic consent.<br />
<br />
A joint mapping exercise identified 142 "actions" under the 12 areas of N-S co-operation established by the GFA. The extent to which this relies on common EU rules is not clear as the report has never been published. "Managed Divergence" could also cover these common EU rules. In practice, I suspect divergence would largely have no impact on N-S co-operation or require only minimal change in form of co-operation - which of course can already arise today when EU introduces or modifies regulations.<br />
<br /></div>
<div style="color: black; font-style: normal; font-weight: 400; letter-spacing: normal; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">
<div style="margin: 0px;">
<u><i><b><span style="font-family: inherit;">Customs Union / Customs border</span></b></i></u></div>
</div>
<br />
There has been a concerted attempt to establish a narrative that no technical solution exists to make an NI customs border invisible. Yet in the last week, there have been 2 separate customs experts presenting such solutions to the parliamentary committee on NI affairs :<br />
- <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/northern-ireland-affairs-committee/the-land-border-between-northern-ireland-and-ireland-followup/oral/92519.pdf">Lars Karlsson</a> (President of KGH Border Services; Former Director of World Customs
Organisation; Deputy Director General of Swedish Customs and author of <a href="http://www.europarl.europa.eu/RegData/etudes/STUD/2017/596828/IPOL_STU(2017)596828_EN.pdf">Smart Border 2.0</a>), who proposes a solution based on best global practices, trade facilitation available via AEO/trusted trader schemes, and "technology-in-trucks".<br />
- <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/northern-ireland-affairs-committee/the-land-border-between-northern-ireland-and-ireland-followup/oral/92519.pdf">Hans Maessen</a>, (former chairman of the Dutch association of customs brokers) who proposes a solution based on existing transit procedures and trade facilitation available in the Union Customs Code.<br />
<br />
A <a href="https://data.oireachtas.ie/ie/oireachtas/debateRecord/joint_committee_on_finance_public_expenditure_and_reform_and_taoiseach/2017-05-25/debate/mul@/main.pdf">May 2017 Irish parliamentary hearing</a> on Brexit suggest Irish Revenue already operate to a "max-facilitation" basis with controls/checks away from the border and were thinking along similar lines for post-Brexit cross-border trade with NI:<br />
<ul>
<li>advance lodgement of declarations used today & documentation checking
via a digital platform (in line with EU's Customs 2020 plan for all-electronic customs paperwork) being explored.</li>
<li>vast majority of customs controls / checks at approved warehouses or trader premises, </li>
<li>82% of imports via AEO /trusted traders & expansion of AEOs (perhaps tenfold) to cover smaller traders expected</li>
<li>NI imports would not be diverted to a customs control point and Irish Revenue do not see the need for trade facilitation bays (as used on Norway-Sweden border).</li>
</ul>
In truth there are numerous ways to manage customs/tariffs without border checkpoints. Ultimately, it should be seen as simply adding another component to the existing "invisible" fiscal border for excise, VAT etc. It is worth noting that excise revenues are typically much larger than tariff revenues.<br />
<br />
<div>
<div style="margin: 0px;">
<u><i><b><span style="font-family: inherit;">Policing Illegitimate Trade</span></b></i></u><br />
<div style="font-family: "times new roman";">
<u><i><b><br /></b></i></u></div>
</div>
</div>
Customs controls and checks are primarily to facilitate and regulate legitimate trade. We should not think of customs borders as hermetically sealed with every item crossing the border being checked. Illegitimate trade is tackled by intelligence led interventions, often directly in the marketplace rather than at the border. In Ireland today, cross-border co-operation between police and customs authorities tackle criminal gangs involved in activities such as excise smuggling, fake goods etc.<br />
<br />
Technology can have a part to play in policing a customs border, but it is perfectly possible to have a "soft" customs border without adding new technology. Interestingly, <a href="https://www.belfasttelegraph.co.uk/news/police-get-13m-number-plate-tracker-28544530.html">ANPR cameras were installed in NI in 2010 to assist in policing smuggling</a>. So these cameras are not monitoring every single border crossing, but are being used to track suspicious lorry movements within NI, and will continue to be so used post-Brexit.<br />
<br />
<i><u><b>Conclusion</b></u></i><br />
<br />
I am confident that a pragmatic "soft" border solution is possible, as described above. Contrary to some popular comment, WTO law does not require that UK erects a hard border, provided tariffs are applied consistently. But the EU's rigid "one-size-fits-all" border laws would mean RoI having to erect a hard border, if NI leaves the Single Market & Customs Union (which contradicts para 45 of the December Joint Report).<br />
<br />
The problem is lack of political will and UK signing the Withdrawal Agreement is only going to permanently embed that. The UK cannot unilaterally deliver a "soft" border, and if rigid application of EU laws requires that EU/RoI erect a hard border, then that is a matter for them. In practice, it is more likely that "No Deal" will be the catalyst for EU & RoI to think more flexibly and practically about the NI border. <a href="https://www.reuters.com/article/us-britain-eu-ireland-border/eu-uk-would-need-a-no-deal-deal-after-hard-brexit-irish-pm-idUSKCN1NQ1UL">Leo Varadkar has suggested an arrangement would be negotiated within 2-3 weeks</a>.<br />
<br />
The logic appears inescapable. The Withdrawal Agreement & NI backstop is a trap for the UK demanding permanent UK partition and vassalage. UK must reject these terms so that there can then be sensible and pragmatic discussions on a "soft" border solution.Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-39373468523051932382018-08-31T13:51:00.001-07:002018-08-31T13:56:39.755-07:00What Northern Ireland thinksNorthern Ireland (NI) has become the central and defining issue for Brexit. The proposed NI backstop in the UK’s Withdrawal Agreement is likely to define and constrain the UK’s future relationship with the EU, or risk separating NI from Great Britain (GB) with a customs and regulatory border in the Irish Sea.<br><div><br></div><div>Sadly, the NI assembly has not been sitting for over 500 days, so NI democratic consent is missing from the whole debate over the NI backstop. Given that NI democratic consent is the cornerstone of the Good Friday Agreement (GFA), this is tragic and potentially a danger to peace.</div><div><br></div><div>So we are left with opinion polling to guage NI public opinion on this matter. Polling undertaken by Queens University Belfast was forwarded to me by a Remainer / Irish nationalist. <a href="https://www.qub.ac.uk/sites/brexitni/BrexitandtheBorder/Report/Filetoupload,820734,en.pdf" id="id_56c1_34a7_3ba9_9779" target="_blank">The report</a> was highly enlightening, but perhaps not in the way the sender intended.</div><div><br></div><div><b><i><u>NI/RoI border questionnaire</u></i></b></div><div><br></div><div>Firstly, let’s take a look at the questions that were asked regarding what would be acceptable for a future NI/RoI border.</div><div>
<img height="640" src="https://pbs.twimg.com/media/DkEPu4dW4AAz1pa.jpg" width="595" id="id_cc4a_5afd_a559_e6d0" style="width: 396px; height: auto; margin: 4px auto; display: block;"><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Some of these questions are seriously eyebrow raising:</span></div><div><ul><li><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Military personnel at customs checkpoints ?</span></li><li><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Travel across NI border: Produce passports; Log travel plans in advance; Photo taken, fingerprinting at the border ? The existing Common Travel Area (CTA) arrangements will remain unchanged and there is surely no realistic prospect of such restrictions.</span></li><li><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Border checks that would add 30 minutes to your journey ? Cars are not subject to border checks in NI/RoI today despite the existing excise border & associated smuggling. The same applies to Norway & Switzerland’s border with the EU - cars are generally allowed to pass subject to occasional spot checks for excise duty.</span></li></ul></div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Does anybody seriously think these scenarios are going to happen ? This smacks of scaremongering by those conducting the survey.</span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto;"><b><i><u>NI views on border with RoI</u></i></b></span></div><div><span style="-webkit-text-size-adjust: auto;"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">So lets look at the responses to these questions: </span></div><div><span style="-webkit-text-size-adjust: auto;"><br></span><img height="621" src="https://pbs.twimg.com/media/DkESEOMXoAAt1ub.jpg" width="640" id="id_b163_5163_b17_4f26" style="width: 383px; height: auto; margin-left: auto; margin-right: auto; display: block;"><br><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">
Just 15% would find ANPR/CCTV cameras along the border “almost impossible to accept”. Not quite the level of opposition often portrayed. In any case, it is widely accepted that trying to cover every one of the 300+ crossing points with cameras is impractical - so the (low) level of outright opposition is a moot point. Existing cameras on main N-S road seems not to be a problem and will obviously stay. Adding cameras to the handful of N-S roads used by freight might help in tracking legitimate freight movements. I suspect in a few years no-one will care about a few cameras on the handful of main N-S roads carrying freight.</span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"> In any case, the current thinking is to put technology inside trucks, i.e. smartphone app + GPS tracking - making the concerns RE cameras & drones redundant.</span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The main finding of interest is the 40% who find "checkpoints with customs officials" almost impossible to accept. No surprise that there is significant opposition to a “hard" border. Customs processing undertaken electronically with any required consignment checks undertaken away from the border (i.e. a "soft" border) would not require manned checkpoints at the border - so would not fall foul of this opposition.</span></div><div><br></div><div><b><i><u style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">NI views on border with GB</u></i></b></div><div><br><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Responses on potential outcomes for an NI-GB border are revealing.</span></div><div>
<br><img height="394" src="https://pbs.twimg.com/media/DkEW6N7X0AIzvqY.jpg" width="640" id="id_c119_3507_8c80_aeed" style="width: 614px; height: auto; margin-left: auto; margin-right: auto; display: block;"><br>
<div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The first question shows about a third opposed to the idea that Free Movement of EU citizens should vary between NI and GB. In practice, post-Brexit UK will likely continue to offer visa-free travel to EU citizens post-Brexit, but residency & employment rights will be subject to an independent UK regime, applying equally in GB & NI. Regarding Irish citizens, the CTA & </span><a href="https://en.wikipedia.org/wiki/Ireland_Act_1949" id="id_3f93_ca59_6bd5_5083">1949 Ireland Act</a><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"> will continue to apply.</span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto;">The remaining 3 questions pertain to NI being in a separate regulatory, customs or jurisdictional regime to GB:</span></div><div><ul><li><span style="-webkit-text-size-adjust: auto;">More than 40% find it </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">“almost impossible to accept” the European Court of Justice (ECJ) having jurisdiction in NI, but not GB. This is higher than the level of opposition</span><span style="-webkit-text-size-adjust: auto;"> to </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">"checkpoints with customs officials" on the NI/RoI border. </span></li><li><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Almost half reject a </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">different regulatory regime for NI which leads to trade barriers with GB. </span></li><li><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Even more striking is the almost 2/3 opposition to customs duty being applied on GB-NI trade, with over 60% of catholics opposed. An Irish Sea Customs border is a complete non-starter.</span></li></ul><div><span style="-webkit-text-size-adjust: auto;">These findings ought to be a killer for the EU’s proposed NI backstop. The levels of opposition to the key tenets of the backstop (ECJ, Single Market/Customs Union in goods applying to NI only) are higher (much higher in the case of an Irish Sea Customs Border) than opposition to a “hard” NI/RoI border (i.e. customs checkpoints on the border).</span></div></div><div><span style="-webkit-text-size-adjust: auto;"><br></span></div><div>The report finds lower opposition to customs checks at the NI-GB border (just under 30%) compared with customs checks at the NI-RoI border (40% opposition). But there is also recognition <span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">of the importance of trade with GB (which dwarfs Trade with a RoI or the rest of the EU), </span>notably among the Catholic & Leave communities. The NI border question encompasses economic as well as national identity questions.</div><div><br></div><div><span style="-webkit-text-size-adjust: auto;"><b><i><u>Conclusion</u></i></b></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">While it is generally accepted that customs checkpoints on the NI/RoI border are unacceptable, it is perhaps less well understood that placing NI in a separate customs, regulatory & jurisdictional regime (as per the EU’s proposed NI backstop) is even more strongly opposed by NI public opinion.</span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Of course Remainers will insist that the only way to resolve these concerns is for the whole UK to stay in the Single Market & Customs Union, a.k.a. BRINO (Brexit in name only). But it should be noted that the Withdrawal Agreement commits to an NI-only backstop and provides no guarantees of a future UK-EU agreement - the implied NI-GB Border ought to make the NI backstop proposal a non-starter.</span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">As noted in the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/665869/Joint_report_on_progress_during_phase_1_of_negotiations_under_Article_50_TEU_on_the_United_Kingdom_s_orderly_withdrawal_from_the_European_Union.pdf" id="id_31d5_aae4_190c_ba7">December phase 1 progress report</a>, the UK is committed to no “hard” border with RoI (para 43), but that cannot be at the expense of the integrity of the UK, it’s internal market or NI’s place within it (paras 44 & 45). So consistent with NI public opinion, there is a need for a “soft “ border solution, i.e. NI outside the Single Market, Customs Union & jurisdiction of the ECJ, while avoiding customs checkpoints on the border with RoI. </span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">A “soft” border solution should be based on cross-border co-operation and pragmatic working arrangements, brokered via N-S co-operation under the GFA (as per my </span><a href="http://my10minuteblog.blogspot.com/2018/08/breaking-impasse-part-3-respect-good.html" id="id_c550_83bd_36d7_1e6a">recent post</a>. A <span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">solution that covers trade in goods (agricultural & manufactured) and accounts for differing customs/tariffs regimes. My next series of posts will examine how such a “soft” border could work.</span></div></div>Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-85207678390373551982018-08-11T07:00:00.000-07:002018-08-13T02:11:56.068-07:00Breaking the impasse (part 3) - Respect the Good Friday AgreementThere's a lot of tosh spoken about the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/136652/agreement.pdf">Good Friday Agreement</a> (GFA), including by our own prime minister Theresa May. There is no reference to an all-island economy. There is no commitment to avoid a customs border. There is no mention of customs at all. The only commitment on borders is the removal of military installations (completed some years ago).<br />
<br />
<u><i><b>Principle of Consent</b></i></u><br />
<br />
However, the GFA does establish the "principle of consent" for the people of Northern Ireland (NI) :<br />
<blockquote class="tr_bq">
<i>"acknowledge that while a substantial section of the people in Northern Ireland share the legitimate wish of a majority of the people of the island of Ireland for a united Ireland, the present wish of a majority of the people of Northern Ireland, freely exercised and legitimate, is to maintain the Union and, accordingly, that Northern Ireland’s status as part of the United Kingdom reflects and relies upon that wish; and that it would be wrong to make any change in the status of Northern Ireland save with the consent of a majority of its people;"</i></blockquote>
Some (nationalists) have argued that NI leaving the Single Market & Customs Union is a change in the status quo which breaches the principle of consent. But the actual wording in the GFA (see above) is clear that the principle of consent applies to "<i>Northern Ireland’s status as part of the United Kingdom"</i>, not to NI's status with respect to the EU or the Republic of Ireland (RoI).<br />
<br />
The EU's current NI-only backstop proposes NI remains part of the EU's Single Market and Customs Union (for goods only) subject to ECJ jurisdiction, creating a customs, regulatory and jurisdictional border with Great Britain (GB). This clearly separates NI from GB in order to facilitate close ties with RoI. While this is not a full constitutional sundering of NI from GB, it is an obvious weakening of NI's place in the United Kingdom and its internal market, which ought to require the consent of an NI majority.<br />
<br />
<div>
<i><u><b>No Deal, No Hard Border</b></u></i><br />
<div>
<br />
So the GFA does not prohibit a "hard" NI/RoI customs border, nor would the GFA principle of consent (of NI majority) apply to such a border. Nonetheless, all parties see the sense in avoiding a hard NI/RoI customs border.<br />
<br />
The UK Government has steadfastly insisted it will not install infrastructure to create a hard border under any circumstances. It has been <a href="https://www.bloomberg.com/news/articles/2018-08-08/u-k-s-may-is-said-to-plan-cabinet-summit-on-no-deal-brexit?cmpid%3D=socialflow-facebook-brexit">recently reported</a> that <i>"a working group of senior UK government officials is being convened to devise ways to keep the Irish border free of customs checks and police even if there’s no withdrawal agreement"</i>. <a href="https://www.express.co.uk/news/uk/977687/Brexit-news-Jean-Claude-Juncker-grilled-Irish-Parliament-Richard-Boyd-Barrett">EU President Juncker</a> & <a href="https://www.independent.ie/irish-news/politics/varadkar-hard-border-will-just-never-happen-ever-36997450.html">Irish Taoiseach Leo Varadkar</a> have both confirmed that in a "No Deal" scenario, there would be <a href="https://www.irishtimes.com/news/politics/eu-calms-varadkar-s-fears-of-physical-border-checks-after-brexit-1.3569485"><i>"no physical infrastructure and customs checks on the Border"</i></a>. So even in a No Deal scenario, no-one is going to erect a hard border.</div>
<br /></div>
So how would "No Deal, No Hard Border" work ? Quite simply, both sides will collect tariffs/duties and apply customs controls away from the border:<br />
<ul>
<li>Importers will be audited and required to submit regular accounts of trade (as they are today for VAT-based INTRASTAT returns used to collect intra-EU trade statistics)</li>
<li>Market surveillance will check goods placed on the market for regulatory compliance. Even today there is regulatory divergence between North and South where UK specifies more stringent safety tests on top of EU's harmonised CE standards (e.g. fireworks, sofas etc), meaning some products that are legal in the South may be illegal to market in the North.</li>
<li>Intelligence-led customs/police interventions will target contraband and counterfeits (as per today) and sources of non-compliant goods.</li>
</ul>
The GFA emphasises and promotes cross-border co-operation between the two jurisdictions (emphasising that there is a North-South jurisdictional border). Specifically, the GFA establishes a North-South ministerial council with designated areas of co-operation. Building on existing strong cross-border co-operation will be crucial to achieving "No Hard Border":<br />
<ul>
<li>Sanitary & Phyto-Sanitary (SPS), i.e .animal and plant health, is already designated as an area of co-operation under the North-South ministerial council and could provide the basis for an all-Ireland SPS inspection regime. </li>
<li>Co-operation on market surveillance (spot checks on goods on the market for regulatory compliance) is currently covered via membership of the Single Market, but post-Brexit should be covered under GFA cross-border co-operation.</li>
<li>Joint police/customs interventions are undertaken today against smuggling (contraband, counterfeits, avoiding excise duty etc.). </li>
</ul>
<div>
<i><u><b>GFA as basis for NI customs border agreement</b></u></i></div>
<br />
If there is to be an agreement on the NI customs border, it seems logical to establish a North-South customs border management body, building on existing cross-border co-operation. This body would be democratically accountable to the two political jurisdictions (North and South), using existing political infrastructures, i.e. the North-South Ministerial Council and British-Irish Council established under the GFA.<br />
<br />
Incorporating an NI/RoI customs border agreement into the GFA would also bring other benefits :<br />
<ul>
<li>WTO will be able to recognise the politically sensitive NI/RoI border as an exception to WTO MFN non-discrimination (which might otherwise require the EU and UK to keep all their borders as open as NI/RoI "No Hard Border"). </li>
<li>Most importantly, the principle of NI consent becomes central. NI could voluntarily choose to align with RoI in the interests of "No Hard Border", or NI could choose to decline such alignment, if the result is an NI-GB hard border that significantly impacts trade.</li>
</ul>
The UK should support NI in whatever arrangements it chooses to make with RoI, for example if NI consents to <a href="https://www.independent.co.uk/news/uk/politics/brexit-latest-irish-border-michel-barnier-theresa-may-backstop-plan-chequers-a8434611.html">"technical checks" on goods crossing the Irish Sea</a> in order to facilitate "No Hard Border" with RoI. NI goods could still enter GB without checks on the basis that UK Government trusts its own (NI) inspectors (both market surveillance and SPS). In fact, as a "cherry-on-top", GB could offer to accept RoI goods without checks, by virtue of UK (NI) inspectors involvement in North-South border management bodies. Such an offer would be on the express understanding that it does not extend to EU-26 goods.<br />
<br />
The EU should also regard the NI border as an exception, delegating control fully to RoI with freedom to make arrangements via GFA institutions/bodies to achieve "No Hard Border". Provided such arrangements prove sufficiently robust, the EU should leave customs border arrangements to the players on the ground rather than insist on a rigid application of EU customs law. As a safeguard, the EU could impose <a href="https://www.conservativehome.com/platform/2018/07/andrew-lilico-forget-the-irish-sea-border-if-we-must-have-a-backstop-how-about-a-celtic-sea-border-instead.html">"technical checks" on goods crossing the Celtic Sea</a> (i.e. between RoI and France/EU-26), if any concerns arise and persist over integrity Single Market / Customs Union integrity.<br />
<br />
<div>
The EU should also allow RoI to recognise NI as "equivalent" with RoI via North-South border management bodies, which would allow NI manufacturers and economic operators (in aligned sectors) to be recognised as operating within the single market. The Swiss are recognised as equivalent in much the same way via EU-Swiss joint committee - without requiring direct application of EU law or ECJ jurisdiction. Such an offer would be on the express understanding that such equivalence does not extend to GB manufacturers and economic operators.<br />
<br />
The major hurdle to this approach is the current suspension of Stormont and power sharing arrangements. The opportunity to shape the debate around the future border arrangements should be incentive to resume Stormont's government. At the very least, Stormont should be convened for the specific purpose of addressing the customs border and/or a North-South border management body should be instituted. Any parties unwilling to participate would sacrifice the right to a voice.<br />
<br />
<b><i><u>Conclusion</u></i></b><br />
<br />
Despite the tosh spoken about the GFA, it is the EU's NI-only backstop proposal which threatens the status of NI within the United Kingdom and its internal market and so threatens the GFA settlement. No self-respecting UK Government should even contemplate signing the Withdrawal Agreement while it mandates economic and judicial borders within the UK.<br />
<br />
In fact, the GFA does not mandate "No Hard Border" for NI/RoI. However, via the GFA, NI consent can be expressed and cross-border co-operation enhanced to manage a "soft" NI/RoI border. The withdrawal agreement should be revised to put the GFA and NI consent front and central.<br />
<br />
In short, instead of weaponising the GFA and the NI customs border issue, it's high time politicians respected the GFA and built an NI customs border solution based on it.</div>
<br />
<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com1tag:blogger.com,1999:blog-8156972773801079896.post-78662026556084129052018-07-15T07:43:00.000-07:002018-07-15T18:39:47.704-07:00Breaking the impasse (part 2) - Ditch the Common Rule BookThe Brexit negotiations appear stalled, with much confusion over the issue of alignment with EU rules and a proposed Common Rule Book. Michel Barnier has consistently made clear the choice facing the UK: we can either be inside the single market and follow <b>all </b>the rules, without dividing the 4 freedoms, so including free movement of people (i.e. Norway), or we can be outside the single market and free from the obligations of the single market (i.e. Canada).<br />
<br />
A pre-requisite for Single Market participation is adopting the EU's Single Market Rule Book, or EEA acquis. Theresa May's proposed Common Rule Book is in reality the EEA acquis, minus some elements (services, free movement of people) that she hopes to exclude. Ultimately, the EU will insist on <b>all </b>the rules being included. It is also clear that in seeking a Common Rule Book, May is negotiating to stay in the Single Market, despite her repeated promises to the contrary. If we simply wish to trade <b>with</b> the Single Market, as per Canada, a Common Rule book is not required.<br />
<br />
The leaked DExEU alternative proposes broad regulatory equivalence as an alternative to Single Market harmonisation and Common Rule Book, based heavily on the Swiss model. However, the EU have repeatedly stated they regret agreeing the Swiss model (agreed as an EEA alternative while the Swiss application for EU membership still stood) and the EU will not offer this model to anyone else, least of all a departing UK. In any case, the EU's measure of equivalence is barely distinguishable from full harmonisation. The Conservative Brexiteers have gone up a blind alley with this approach.<br />
<br />
The main trade gain comes from using common standards. A UK product designed, manufactured & tested to harmonised European CE standards for the UK market can also be marketed in the EU/EEA market without needing a separate design, manufacturing or assessment process. But of course, an independent UK can voluntarily choose to recognise and use harmonised European CE standards, without membership of the Single Market.<br />
<br />
So the question arises - what are the gains from a Common Rule Book / Single Market membership over and above the use of common standards ? Does being outside the Single Market for goods mean other expensive or insurmountable barriers to trade ? I'll try to answer that question with an overview of the impact of leaving the Single Market on UK goods.<br />
<br />
<u><i><b>Manufactured Goods - Conformity Assessment</b></i></u><br />
<br />
As I described in a <a href="http://euquestion.blogspot.com/2017/10/leaving-single-market-product-rules.html">previous blog</a>, all manufactured products conforming to EU harmonised CE standards are afforded <i>"presumption of conformity"</i> by EU legislation, whether the manufacturer is based in EU/EEA or third country outside the single market.<br />
<br />
For the vast majority (~95%) of manufactured products covered by EU harmonised regulations, the manufacturer certifies the product, issues a Declaration of Conformity (DOC) & affixes the CE label. A minority (~5%) require certification by an independent EU/EEA based Certification Assessment Body (CAB). The mitigation for this is straightforward:<br />
● <a href="https://www.ukas.com/news/ukas-contributes-to-brexit-discussions/">UKAS (UK Accreditation Service) is applying to retain membership of EA (European Accreditation)</a>, so that UKAS accreditation will continue to be recognised by the EU.<br />
● A Mutual Recognition Agreement (MRA) on Conformity Assessment would allow UK based CAB's and their certificates to be recognised by the EU (and vice-versa).<br />
<div>
● In any case, UK-based CABs can use subsidiary/subcontract relationships with an EU-based CAB to allow their certificates to be recognised in the EU/EEA (and vice-versa).</div>
<br />
The primary difference for third country manufacturers is the need to use an EU/EEA-based importer - who holds the declarations of conformity / technical file and acts as a contact point - but is not responsible for conformity assessment. Companies who have a subsidiary, office or even an individual based in the EU/EEA can act as their own importer. The end customer can act as importer. Shipping/Warehousing companies, agents etc. all offer importer services. It's not onerous.<br />
<br />
Outside the Single Market, goods will become subject to regulatory checks at the border. Checks are determined on the basis of risk assessment, and even today EU-UK trade is subject to risk assessment and checks for contraband and counterfeits. Overall rates are low (just 1% of third country goods entering RoI are subject to checks) mostly checking paperwork or container seals / labels - only a very small number of consignments are subject to opening and physical inspection. Attention is focused on known sources of risk, e.g. counterfeit goods from the Far East. Non-compliance with standards is mostly identified via market surveillance (not at the border), which then feeds back as intelligence into customs risk assessment for future consignments. The risk of increased border checks for regulatory non-compliance (as opposed to deliberate counterfeits and fraud, which is already checked today) is negligible, especially for established and trusted traders.<br />
<br />
<u><i><b>Highly Regulated Sectors.</b></i></u><br />
<div>
<u><i><b><br /></b></i></u></div>
<div>
Some sectors are more highly regulated, requiring product pre-approval via an EU agency. In her <a href="https://www.gov.uk/government/speeches/pm-speech-on-our-future-economic-partnership-with-the-european-union">Mansion House speech</a>, Prime Minister Theresa May identified 3 such key sectors : Chemicals, Pharmaceuticals, Aviation.<br />
<br />
In the Chemicals & Pharmaceuticals sectors, the impact of leaving the single market is transferring approvals/authorisations to an EU/EEA based agency via an EU/EEA based individual (while manufacturing can remain in the UK) e.g.<br />
●REACH registrations via an "Only Representative"<br />
●BPR (Biocidals) product authorisations via an "Authorisation Holder"<br />
●BPR (Biocidals) product suppliers via a "Representative"<br />
●Pharamaceutical products via a "marketing authorisation holder"<br />
●<a href="http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_000258.jsp&mid=WC0b01ac0580b18c76">Pharmacovigilance</a> (batch quality control and monitoring of pharmaceuticals for adverse affects) via a "Qualified Person for Pharmacovigilance" (QPPV)<br />
<br />
Standard third country MRAs (as enjoyed by Swiss, Canada, Australia, New Zealand, Japan etc) can mitigate barriers in Chemical & Pharmaceutical sectors:</div>
<div>
● <a href="http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/general_content_001843.jsp&mid=WC0b01ac058005f8ac">MRA on Good Manufacturing Practice (GMP)</a> would allow Pharamacovigilance to be undertaken in the UK territory and simply signed off by the EU/EEA-based QPPV (and vice versa) - waiving re-testing of products on import.<br />
● <a href="http://ec.europa.eu/growth/sectors/chemicals/good-laboratory-practice_da">MRA on Good Laboratory Practice (GLP)</a> would allow mutual acceptance of data generated in the testing of chemicals, which means approvals in both regimes can refer to the same lab tests.<br />
<br />
In the aviation sector the <a href="https://www.politico.eu/wp-content/uploads/2018/03/PARL-Draft_Resolution_4_0503-1930.pdf">EU Parliament Proposal</a> (paras 31 & 32) exhibits a strong desire for a bi-lateral agreement on air transport and aviation safety, <i>"in the interest of the passengers, air carriers, manufacturers and workers' unions", </i>based on <i>"similar agreements with other third</i><br />
<i>countries"</i>. The UK would need to adopt EU aviation safety law & ECJ rulings (as for example Turkey's "working agreement"). UK's Civil Aviation Authority (CAA) would then retain the right to issue EASA certifications of air-worthiness. Swiss-style observer status at EASA may also be a possibility. In time, CAA will recover capacity and a mutual recognition agreement with EU may then be more appropriate (as per USA, Canada).<br />
<br />
<u style="font-family: "times new roman";"><i><b>Car industry</b></i></u><br />
<br />
The Car industry is also a vital sector where product pre-approval applies. The UK's Vehicle Certification Agency (VCA) issues whole car type approvals which allow a model to be marketed throughout the Single Market<br />
<br />
EU vehicle regulations are increasingly driven via <a href="https://www.unece.org/trans/main/wp29/introduction.html">UNECE WP.29</a>, an international forum for harmonisation of automobile regulations. UN International regulations annexed to the UNECE 1958 Agreement provide mutual recognition of car component type approvals (even without any UK-EU agreement). UN Global Technical Regulations annexed to the 1998 agreement allow mutual recognition of regulatory equivalence for car components (included in EU's Free Trade Agreements (FTAs) with Korea, Japan & Canada). This removes regulatory barriers for car components (where covered by UNECE regulations), and UNECE approvals can substitute for elements of the EU's whole car type approval.<br />
<br />
What is missing is the continued recognition of VCA's whole car type approval outside the single market. Is there scope for a form of "working agreement" (as per the aviation sector) to allow VCA to continue issuing EU recognised whole car type approvals ? I think so:<br />
● EU has tabled regulatory co-operation on vehicles for talks on the future trade agreement.<br />
● Korea, Canada, Japan do not have national bodies for vehicle certification in any case. Whereas the Swiss do and the EU-Swiss MRA provides for mutual recognition of whole car type approvals in return for adoption of relevant EU regulations.<br />
● At EU's behest, UNECE is developing Regulation 0 to provide for international whole car type approval. So EU is already actively planning to extend mutual recognition of approvals beyond the EU/single market.<br />
● UK's VCA has also issued approvals for some EU and third country car manufacturers. Why should they be punished and denied EU market access ?<br />
● UK's VCA would need to continue commitment to UNECE WP.29 and adopt EU regulations / ECJ rulings where UNECE has not (yet) legislated. In time UNECE regulations (including Regulation 0 on whole car type approval) will replace all EU car regulations.<br />
● UK exports 800k cars to EU but imports 2.3 million from EU every year. Who loses by erecting a huge trade barrier in this sector ?<br />
<br />
<b><i><u>Agriculture</u></i></b></div>
<br />
EU Sanitary & Phytosanitary (SPS) regulations provide a very high barrier to agricultural trade for third countries outside the Single Market. Third country meat/dairy imports face veterinary checks at Border Inspection Posts: 100% documentary/identity checks; varying percentages for physical inspections (50% for some products). <a href="https://ec.europa.eu/food/safety/international_affairs/trade/agreements_en">EU agricultural equivalence agreements with third countries</a> allow for lower rates of physical inspections (e.g. Canada 10%, New Zealand 2%). The Swiss have harmonised their SPS regulations with the EU and are deemed to be part of the EU/EEA SPS regime, with no border checks required for Swiss-EU/EEA trade.<br />
<br />
The EU's SPS regulations are particularly protectionist. They require UK to apply the same protectionist measures to third countries (as discussed in a previous blog <a href="https://my10minuteblog.blogspot.com/2017/11/brexit-briefing-sps-regulations.html">here</a>), ruling out FTAs with USA (chicken etc), India (Basmati rice etc), Liam Fox's hope of joining the TPP and a host of others. Scientific research & development in GMO is blocked. A WTO ruling/fine against the EU's ban on Canadian beef will be served on the UK if we keep EU SPS rules after leaving the EU. We are currently a captive customer for EU agricultural products, with a 3:1 trade deficit.<br />
<br />
It is clear to me that we will be much better served leaving the EU's SPS regime. UK-EU trade will face border veterinary inspections in both directions, so UK meat/dairy exports to EU would be diverted to the domestic market. We can quickly strike agricultural equivalence & Tariff Quota agreements w/ Australia, New Zealand, Canada, Commonwealth states, South America etc - removing tariff and non-tariff barriers to these alternate (and generally lower priced) non-EU suppliers. Subsidies (Green-box etc) & use of quotas should be deployed to protect the UK meat/dairy sector through a transition. But ultimately, we will end up in a much better place and secure more trade globally on the back of it.<br />
<br />
<i><u><b>Conclusion</b></u></i><br />
<br />
In the manufacturing sector, there will be some relocation of individuals/roles to fulfill the requirement for an EU/EEA based importer/representative, but some EU/EEA individuals/roles will also relocate to the UK - a one-off adjustment but not a long term issue. The risk of extra border checks for regulatory compliance is negligible. Breaching the EU law/ECJ red line in the car & aviation sectors is a small price to pay and in time the need for EU jurisdiction in these sectors will pass. In the agriculture sector, there is a clear case for breaking free from the EU's protectionist SPS rules in the interests of consumers and greater trade opportunities globally.<br />
<br />
We are likely to broadly continue using harmonised European CE standards in any case, so reaping the benefit of a single design, manufacturing & assessment process for both UK & EU markets. But outside the Single Market, we are free to diverge as and when it makes sense to do so - in full consideration of the interests of our domestic economy and global trade. We would also be free from the EU's indivisible 4 freedoms and free movement of people. This would make negotiaing and maintaing a new relationship much easier and cleaner. In short, we should ditch the Common Rule Book and become a fully independent and sovereign third country - like Canada.<br />
<br />
The fly in this ointment is the NI border, which I will look at in my next blog.Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com7tag:blogger.com,1999:blog-8156972773801079896.post-7202334584939186592018-06-29T09:01:00.000-07:002018-06-30T07:48:04.218-07:00Breaking the impasse (part 1) - Backstop as a StopgapThe Brexit negotiations appear stalled, stuck on the thorny question of the Irish border. The EU and UK are at loggerheads over the EU's current backstop proposal, which even the supine Mrs May said "No UK prime minister could ever agree", and there appears to be no agreement in sight.<br />
<br />
However, my reading of the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/665869/Joint_report_on_progress_during_phase_1_of_negotiations_under_Article_50_TEU_on_the_United_Kingdom_s_orderly_withdrawal_from_the_European_Union.pdf">Phase 1 Agreement</a> and <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691366/20180319_DRAFT_WITHDRAWAL_AGREEMENT.pdf">NI Protocol in the Draft Withdrawl Agreement</a> suggests that the EU has already (if unwittingly) agreed to a backstop that is: (1) UK-wide, (2) Cherry-picked, i.e. covers free movement of goods only (excludes services) ; (3) excludes EU free movement of people, (4) temporary until a "soft" border solution is implemented. In other words, the backstop provides a UK-wide stopgap to a full agreement and solution.<br />
<br />
Firstly, let's consider the general commitments made by the UK regarding NI in the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/665869/Joint_report_on_progress_during_phase_1_of_negotiations_under_Article_50_TEU_on_the_United_Kingdom_s_orderly_withdrawal_from_the_European_Union.pdf">Phase 1 Agreement</a>:<br />
<ol>
<li>Avoid a <i>"<b>hard </b>border, including any physical infrastructure or related checks and controls"</i> (para 43). Not, as commonly mis-reported, a commitment to no border. There are already checks required today against counterfeits, contraband and to police the existing excise border. The logical interpretation is that controls or checks will be undertaken away from the geographical NI-RoI border.</li>
<li>Protect <i>"the integrity of the UK internal market and Northern Ireland's place within it"</i> (para 45). The same paragraph also confirms that the "<i>UK leaves the European Union's Internal Market and Customs Union" </i>- emphasising again that the UK commitment is simply to avoid a <b>hard </b>border, not avoid any border at all.</li>
<li>Preserve the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/136652/agreement.pdf">1998 Belfast / Good Friday agreement</a>, especially North-South & East-West co-operation (para 48). Note that:</li>
</ol>
<blockquote class="tr_bq">
<ul>
<li>The 1998 agreement quite explicitly clearly refers to two distinct jurisdictions (each side to remain accountable to the Assembly and Oireachtas respectively). Cross-border co-operation exists precisely because there are two distinct jurisdictions, each with their own legal and constitutional order. The 1998 agreement neither creates nor requires a single all-Ireland jurisdiction.</li>
</ul>
<ul>
<li>Contrary to much uninformed commentary, the 1998 Agreement says nothing about customs borders. It refers to borders only in the context of removing military & security infrastructure, which is not going to be reinstated due to any future trading relations.</li>
</ul>
</blockquote>
Secondly, let's consider the specific commitments made regarding a backstop in the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/665869/Joint_report_on_progress_during_phase_1_of_negotiations_under_Article_50_TEU_on_the_United_Kingdom_s_orderly_withdrawal_from_the_European_Union.pdf">Phase 1 Agreement</a>, which is intended to deliver the above general commitments in the absence of any other agreed solutions with the EU:<br />
<ol>
<li> "<i>UK will maintain full alignment</i>" (para 49) - the backstop does not just apply to, or for, Northern Ireland - the whole UK is encompassed.</li>
<li><i> "with <b>those </b>rules of the Internal Market and the Customs Union ..."</i> - i.e. <b>not </b>all rules. The backstop is clearly based on "cherry-picking"<i>.</i></li>
<li><i>"The UK will ensure that n</i><i>o new regulatory barriers develop between NI </i><i>and the rest of the UK, <b>unless</b> ... the NI Executive and Assembly agree that distinct </i><i>arrangements are ap</i><i>propriate for NI." </i>The backstop must not create any new barriers to GB-NI trade and cannot imply an Irish Sea border, unless NI voluntarily decides to diverge from GB.</li>
</ol>
Thirdly, let's consider what are the selective "<i><b> </b>rules of the Internal Market and the Customs Union" </i>that apply to the backstop ? The <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691366/20180319_DRAFT_WITHDRAWAL_AGREEMENT.pdf">NI Protocol in Draft Withdrawl Agreement</a> (chapter III) defines a common regulatory area:<br />
<ol>
<li>Article 4, covering Free Movement of Goods implies being inside the EU's Customs Union. References to <a href="https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32013R0952">Regulation (EU) No 952/2013</a> require : Common Customs Tariff (i.e. Common External Tariff <i><b>and</b></i> preferential rates of EU's FTA's) must be applied to imports; ports will be subject to EU customs law and oversight.</li>
<li>The section on free movement of goods also includes EU laws on goods, agriculture & fisheries, single electricity market, environment, North-South co-operation, State Aid.</li>
<li> Article 8 lists the areas of North-south co-operation as: environment, health, agriculture, transport, education & tourism, as well as energy, telecommunications, broadcasting, inland fisheries, justice & security, higher education & sport. In other words many of the areas are not covered by EU laws on trade or are outside EU competence.</li>
<li>Article 2 covers free movement of people, which refers to the UK/RoI Common Travel Area (CTA) and <b>not </b>to EU's rules on free movement.</li>
<li> Article 11 states the "Court of Justice of the European Union shall have jurisdiction".</li>
</ol>
It should be noted that much of the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691366/20180319_DRAFT_WITHDRAWAL_AGREEMENT.pdf">Draft NI Protocol </a>is in un-highlighted text (indicating it is not yet agreed by UK and EU) most notably the jurisdiction of Court of Justice of the European Union. The only items highlighted in green (indicating UK & EU agreement) are Free movement of people (via CTA) and North-south co-operation. The State Aid clause is highlighted in yellow (indicating UK & EU agreement in principle). Nonetheless, the Draft NI protocol clearly outlines a single market and customs union in goods only, without EU free movement of people (agreed as covered by continuation of the Common Travel Area (CTA)).<br />
<br />
Fourthly, let us consider how the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/665869/Joint_report_on_progress_during_phase_1_of_negotiations_under_Article_50_TEU_on_the_United_Kingdom_s_orderly_withdrawal_from_the_European_Union.pdf">Phase 1 Agreement</a> and <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691366/20180319_DRAFT_WITHDRAWAL_AGREEMENT.pdf">Draft NI Protocol</a> make clear that the backstop is not meant to be a permanent arrangement:<br />
<ol>
<li> Phase 1 agreement para 46 states that commitments made for the unique circumstances on the island of Ireland will not pre-determine the outcome of wider discussions on the EU-UK future relationship.</li>
<li>Phase 1 agreement para 49 states the UK intention to address unique circumstances of Ireland via the overall UK-EU FTA, or via solutions specific to the island of Ireland - with the backstop only applying if no solutions have been agreed</li>
<li>NI protocol article 15 states that the protocol (including backstop) will cease to apply if a subsequent UK-EU agreement addresses the unique circumstances in Ireland.</li>
</ol>
Given the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/665869/Joint_report_on_progress_during_phase_1_of_negotiations_under_Article_50_TEU_on_the_United_Kingdom_s_orderly_withdrawal_from_the_European_Union.pdf">Phase 1 Agreement</a> calls for (i) UK-wide "full alignment" and (ii) commitment to integrity of UK internal market (and NI's place within it) - the logical interpretation is that the EU have signed up to a UK-wide goods-only backstop without EU freedom of movement, that is only temporary in application. The EU may not like the implications of what they have agreed, but if they renege on their commitments to date, then what chance is there we can reach any kind of workable agreement ?<br />
<br />
The current impasse has arisen because the EU insist the backstop can only apply to NI (which contradicts the phase 1 agreement) and because they show no interest in addressing the NI border issues via a UK-EU FTA or specific solutions (in effect they want and expect their version of the backstop to be permanent). At the same time, the EU believe (not without foundation) that the UK Government are trying to leverage the NI border issue to gain a permanent UK-wide Swiss-style regulatory equivalence and customs alignment deal. While such an outcome may be sought by the likes of Philip Hammond, it is not acceptable to Leavers, Re-Leavers, or the EU.<br />
<br />
It seems to me that the only way out of this impasse is for both sides to agree a backstop that is temporary - essentially a stopgap - to allow time to implement a permanent "soft" border solution for the NI border. Such a stopgap will also allow businesses & customs authorities in both UK and EU to fully prepare for UK outside the Single Market & Customs Union. The stopgap arrangement should be written into the Withdrawl Agreement in unambiguous terms:<br />
<ol>
<li>Stopgap agreement should be unpalatable in equal measures to both sides. That way both sides have an incentive to move on from the stopgap to a full and final agreement. </li>
<li>The UK could concede on ECJ jurisdiction and some continuing payments for the period of the stopgap.</li>
<li>The EU should concede on a UK-wide goods-only arrangement without EU's Free Movement of People rules for the period of the stopgap - as per what has been agreed already in Phase 1 and Draft Withdrawl treaty. The UK government should stand firm on free movement, despite hints May would like to compromise on this.</li>
<li>A definition of (including proposed timescales) and commitment to a "soft" border solution in NI, together with a break or sunset clause so that the stopgap does not simply extend forever.</li>
</ol>
<div>
It is now crucial that all parties consider and agree how an overall UK-EU FTA and special solutions for Ireland can provide a "soft" border solution for Ireland. As you may expect, I have some thoughts on how these arrangements may work - but that is a topic for another post.</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com1tag:blogger.com,1999:blog-8156972773801079896.post-85454602730794462902018-03-31T05:30:00.001-07:002018-03-31T10:12:12.781-07:00A Brexit Turkey (part 3) - Customs Union is not a Brexit solutionSome bad ideas seem reluctant to die. The Institute of Directors (IoD) have published a "partial" Customs Union proposal (based on Turkey's Customs Union agreement with the EU), primarily to eliminate preferential Rules of Origin (RoO) in UK-EU trade.<br />
<br />
In my <a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-2-are-rules-of.html">previous post</a>, I discussed how preferential RoO are far from insurmountable. How significant are the costs associated with preferential RoO ? Open Europe assumed leaving the EU Customs Union would add 4% to cost of trade transactions (RoO costs & customs admin) leading to a 1% loss of GDP. Other studies suggest RoO adding less than 2% to transaction costs. One <a href="https://www.wto.org/english/res_e/reser_e/ersd201212_e.pdf">detailed study</a> suggests RoO is a one-time cost that does not increase with increased volume of transactions.<br />
<br />
A Customs Union seems a very blunt instrument to use, especially as trade with 3rd countries would still be subject to RoO. Are there other ways to address this issue ?<br />
<div>
<br /></div>
<i><u><b>Rule of Origin Solutions</b></u></i><br />
<br />
<a href="http://ecipe.org/app/uploads/2018/01/ECIPE_PB0118_V3.pdf">Blockchain technology</a> has been touted as a way to simplify the administration & auditing of complex supply chains, hence minimising RoO administration costs. However, as promising as this technology may appear, we are probably a decade away from fulfilling this potential.<br />
<br />
A <a href="https://www.fdf.org.uk/corporate_pubs/FDF-Rules-of-origin-report.pdf">recent paper</a> examined preferential RoO for the Food & Drink Federation, a sector which makes particular use of global supply chains:<br />
- Five case studies are examined, identifying challenges provided by use of non-local content in qualifying for tariff-free trade via preferential RoO.<br />
- Both Pan-European Mediterranean (PEM) RoO and CETA RoO are compared for each case.<br />
- The first case study is UK wholemeal bread, which uses flour milled in the UK from grains sourced from UK, US and Canada: PEM RoO require grains to be sourced entirely locally; CETA RoO limits non-local grains to 20% by weight of final product. Otherwise the EU tariff of 9% would be payable on exports to the EU.<br />
<div>
<br /></div>
<div>
Some context is required here: </div>
<div>
- Bread is primarily produced and consumed locally: 85% of wheat used by UK flour millers is home-grown, with most of the imports from Canada; UK domestic sales amount to £3.5bn per annum (<a href="https://www.bakeryandsnacks.com/Article/2016/07/01/EU-unzipped-How-bread-can-cut-it-in-post-Brexit-Britain">"Bakery & Snacks"</a>). </div>
<div>
- By contrast, UK bread exports to the EU amounted to just £87.5m for the first 9 months of 2016, i.e. ~£117m per annum (<a href="https://bakeryinfo.co.uk/news/fullstory.php/aid/17148/Bakery_exports:_Bread_sales_increase_10_25_year_on_year.html">"BakeryInfo"</a>). </div>
<div>
- The UK runs a massive trade deficit with the EU across the whole food and drink sector (<a href="https://www.fdf.org.uk/eu-referendum-food-drink-statistics.aspx">Food & Drink Federation statistics</a>).</div>
<br />
The Food & Drink Federation paper makes a number of suggestions for addressing these RoO issues, which could also apply to others sectors:<br />
- Allow 10% non-originating product content without losing originating status (already provided in <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2013:054:FULL&from=EN">PEM RoO</a>, under article 5.2 (a) );<br />
- Full bi-lateral cumulation in EU-UK trade so that EU content counts as local in UK exports to EU and vice versa - almost certain to be part of an UK-EU FTA;<br />
- Full diagonal cumulation with EU FTAs, e.g. so that UK, EU and Canada can count each other's content as local in trade between themselves;<br />
- Exempt Least Developed Country (LDC) origin content in UK-EU trade so that LDC content counts as local<br />
- Exempt products / content where EU & UK have same MFN tariffs. i.e. count products as local where there is no risk of trade diversion arising from different MFN tariffs - a form of halfway house to the UK governments customs partnership concept);<br />
- Allow origin to be determined on final value OR weight criteria (protects products where local processing adds high vale to a premium product);<br />
- Simplify RoO documentation.<br />
<ul>
</ul>
Another approach would be to abandon preferential RoO in favour of simpler non-preferential / Most Favoured Nation (MFN) RoO (as suggested by <a href="https://twitter.com/leemakiyama/status/958284388671852544">Hosuk Lee-Makiyama)</a>. Non-preferntial RoO typically determines origin on the simple basis of where last substantive processing was performed, rather than where inputs are sourced :<br />
<blockquote class="tr_bq">
<i>"... the world trading system could do without preferential rules of origin. Preferences can be granted on the basis of most favoured nation (MFN) rules of origin anyway. Empirical literature suggests that, if the purpose for enacting preferential rules of origin was to facilitate commerce or promote inward investment, then their implementation has in practice defeated the purpose. Beneficiaries of preferences often prefer to trade using MFN rules of origin, rather than going though cumbersome procedures to show that they can ‘benefit’ from preferential rules. Thus, in the end, preferential rules of origin are neither necessary for preferences to be granted, nor have they facilitated trade or investment. Our policy recommendation for the negotiators of the Harmonized Working Programme (HWP), which aims to establish common rules of origin for all WTO members, is to also decide to outlaw preferential rules of origin. " </i> Abstract from "<a href="https://www.researchgate.net/publication/323276083_The_case_for_dropping_preferential_rules_of_origin">The case for dropping preferential rules of origin</a>" by Edwin Vermulst and P. Mavroidis </blockquote>
Adopting amended or simplified RoO for UK-EU trade will of course be entirely dependent on EU agreement, which may not be forthcoming. Is there perhaps a more simple and radical way to avoid preferential RoO ?<br />
- IoD's contention is that (i) preferential RoO is a significant trade barrier (ii) tariffs on manufactured products and processed foods are in any case low - so low that they offer no leverage in securing trade agreements with third countries.<br />
- This actually chimes with arguments for "Unilateral Free Trade" as proposed by Economists for Britain, who argue that we should ignore preferential FTAs and instead unilaterally lower tariffs - favouring UK consumer interests (including manufacturers sourcing inputs) over producer interests. Preferential RoO is removed as a consideration for all imports and exports. Attention can then be focused on removing regulatory / technical barriers to trade.<br />
- Unilateral Free Trade offers a way to eliminate preferential RoO, without requiring EU agreement. If as IoD and others argue, tariffs are sufficiently low to not be an issue, why chase preferential trade deals - even with the EU ?<br />
<br />
<u style="font-weight: 700;"><i>Partial Customs Union & Irish border </i></u><br />
<u style="font-weight: 700;"><br /></u>IoD claim that a partial Customs Union like Turkey's would help alleviate issues with the Irish land border. But Turkish experience does not support this argument, with long lorry queues at the Turkey-Bulgaria border. A number of issues arise:<br />
- Basic agricultural goods are excluded from the Turkish Customs Union and require full customs clearance is still required for these goods. Meat / dairy constitutes a significant portion of UK / RoI trade.<br />
- An A.TR movement form must be presented at the Turkey-EU border, declaring all customs formalities have already been completed.<br />
- Turkey is outside the EU's VAT union, so import VAT is also payable at the border. Does the IOD intend for UK to remain in the EU's VAT union as well ? (meaning UK could not cancel the "tampon tax" or eliminate VAT on household energy bills for example).<br />
<ul></ul>
<b><i><u>Conclusion </u></i></b><br />
<br />
The IoD's proposed "partial" Customs Union would not remove the need for a customs border.<br />
<br />
The IoD's argument for "partial" Customs Union rests entirely on RoO. RoO does not provide an insurmountable barrier. RoO administrative costs are subject to debate, appear low and may be negligible beyond an initial cost.<br />
<br />
A "partial" Customs Union would only avoid RoO for trade with the EU - any preferential trade with third countries (including other European countries such as EFTA members) would still require preferential RoO.<br />
<br />
A "partial" Customs Union would not allow an independent UK trade policy, and will keep the UK tied into an EU-centric trade policy. This is counter to UK's strategic interests. The UK runs a huge trade deficit with the EU, whereas UK trade with the Rest of the World is broadly in balance. UK exports to the Rest of the World have grown and overtaken UK exports to the EU, mirroring the EU's diminishing share of global GDP.<br />
<br />
There are other ways to mitigate the impact of RoO. The worst case is that some supply chains may be repatriated to the UK - given the huge trade deficit the UK has with the EU, this may be no bad thing.<br />
<br />
Ironically, Unilateral Free Trade offers a way to eliminate preferential RoO, without requiring EU agreement. If as IoD and others argue, tariffs are sufficiently low to not to be an issue, why chase preferential trade deals - even with the EU ? Perhaps a hybrid solution could be adopted - eliminate tariffs where UK has no domestic industry to protect (e.g. tropical fruits !) and also for inputs to manufacturing (e.g. car parts would be zero-rated), but retain higher-rated EU tariffs for key sectors / finished products to use as leverage in trade agreements (e.g. retain 10% tariff on finished cars, ~40% tariffs for meat etc.). The UK could then seek to negotiate FTA's to eliminate these high rated tariffs using non-preferential / MFN RoO.<br />
<div>
<br /></div>
In short, we should reject the IoD's proposal to keep the UK locked into a 19th century Zollverein Customs Union, designed primarily to promote European political integration. As Brexit solutions go, the IoD's proposal is a real turkey.<br />
<br />
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<div style="font-family: "times new roman";">
Posts in this series:</div>
<div style="font-family: "times new roman";">
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-1-no-trade-policy.html">A Brexit Turkey part 1 - No UK Trade Policy</a></div>
<div style="font-family: "times new roman";">
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-2-are-rules-of.html" style="font-family: "Times New Roman";">A Brexit Turkey part 2 - Are Rules of Origin insurmountable ?</a><br />
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-2-are-rules-of.html" style="font-family: "Times New Roman";">A Brexit Turkey part 3 - Customs Union is not a Brexit solution</a></div>
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<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com8tag:blogger.com,1999:blog-8156972773801079896.post-10566284341479837612018-02-25T04:51:00.005-08:002018-05-29T12:56:19.253-07:00A Brexit Turkey (part 2) - Are Rules of Origin insurmountable ?Some bad ideas seem reluctant to die. The Institute of Directors (IoD) have published a Customs Union proposal (based on Turkey's Customs Union agreement with the EU), which as discussed in my <a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-1-no-trade-policy.html">last post</a>, would result in the UK having no control over tariffs or Free Trade agreements (FTAs).<br />
<div>
<br /></div>
<u style="font-weight: 700;">Rules of Origin (RoO)</u><br />
<br />
So what is IoD's argument for a Customs Union ? Essentially it comes down to preferential RoO (Rules of Origin). Outside the Customs Union, assuming an FTA is agreed with the EU, UK exporters will be required to prove goods are substantially sourced or manufactured locally in order to qualify for preferential tariffs (so importing a product from a third country like China and sticking a UK badge on it does not qualify for preferential tariffs !).<br />
<br />
The IOD suggest that many exporters fail to take advantage of preferential rates in FTAs, deterred by the cost/complexity of preferential RoO. To avoid the complexity, they simply pay the tariff. The inference is that a UK-EU FTA would see companies failing to utilise the FTA and incurring tariffs - a problem avoided by a customs union with the EU.<br />
<br />
However there are plenty of grounds for questioning this rather simplistic narrative:<br />
<ul>
<li>IOD cite a literature review of RoO and utilisation of FTAs. However the review itself contains statements such as <i>“Research on RoO, however, is in its infancy “</i> ...<i> “studies on FTA usage are very limited in scope"</i> etc. </li>
<li>IOD cite a survey of their own members suggesting low use of preferential rates in third country FTAs. But a recent report on <a href="https://www.kommers.se/Documents/dokumentarkiv/publikationer/2018/Publ-The-use-of-the-eus-ftas.pdf">utilisation of EU FTAs published by UNCTAD</a> found utilisation at 66% by EU member states and 90% by third countries exporting to the EU market. </li>
<li><a href="https://twitter.com/Lucian_Cernat/status/957929532111106049">Commenting on the UNCTAD report, Lucian Cernat</a> (Chief Economist, DG Trade European Commission) suggested information / assistance to SMEs would help EU exporters better utilise FTAs. This echoes <a href="http://blogs.sussex.ac.uk/uktpo/files/2018/01/BP15-CRoO.pdf">UK research by Peter Holmes & Nick Jacob</a> (Sussex University) finding <i>"a substantial minority of firms are unsure of how RoOs work and the options available to firms for compliance."</i></li>
<li>IOD cite an <a href="http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2016/swd_2016_0475_en.pdf">EU assessment of Turkeys CU</a> stating the following RE costs of RoO: <i>"Based on empirical evidence that third country exports still use preferences even when EU duties are low (in the range of 2% to 3%), it has been decided to retain a conservative cost of 2%". </i></li>
<li>The research by Holmes & Jacob also suggests that cost of compliance with preferential RoO was not as costly as previously thought, with much of the cost being an up-front investment to upgrade/set up systems.</li>
</ul>
<u style="font-weight: 700;">RoO & Car Industry</u><br />
<br />
IOD raises concerns for the car industry, quoting <a href="http://www.mofa.go.jp/files/000185466.pdf">Japan's message to the UK & EU</a>: <i>"the introduction of inconvenient rules of origin <b>could</b> delay and increase the costs of logistics operations, which would have a significant impact on business operations".</i><br />
<i><br /></i>Even from this snippet, it is plain to see that Japan's concern is with logistics and speed through customs clearance, rather than the cost of RoO compliance. This is even clearer when the full context is examined, where Japan requests that the UK & EU "<i>maintain the simplified customs clearance procedures between the UK and EU, especially the </i><i>framework for the mutual recognition of AEOs ... </i><i>Changes in customs clearance procedures for exports to the UK and the application of complicated procedures due to the introduction of inconvenient rules of origin could delay and increase the costs of logistics operations".</i><br />
<br />
Japan also raise the issue of achieving RoO content thresholds when supply chains are distributed across the EU. They request that cumulative RoO apply in future UK-EU27 trade, which means components/processing sourced from either the UK or EU-27 count as "local" in the RoO determination - such "bi-lateral cumulation" is standard practice in FTAs. The fact that Japan raises cumulation indicates they are not requesting or expecting a future UK-EU customs union.<br />
<br />
<u style="font-weight: 700;">RoO & Chemicals Industry</u><br />
<u style="font-weight: 700;"><br /></u>IOD also raise concerns over the impact of RoO on the UK chemicals industry. Steve Elliott, Chief Executive Officer, Chemical Industries Association, in <a href="https://publications.parliament.uk/pa/ld201617/ldselect/ldeucom/129/12908.htm">evidence to a House of Lords Committee</a> described RoO as : <i>“a substantial level of bureaucracy ... in our case there could be several stages of synthesis involved … would clearly outweigh the benefit of duty-free sales”.</i> (Tariffs for chemicals are typically around 6%).<br />
<br />
The EU, EFTA and various other Balkan, African and Middle-Eastern states are signed up to <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2013:054:FULL&from=EN">Pan-Euro-Mediterranean (PEM) preferential rules of origin</a>, which state that :<br />
<ul>
<li>Chemical products (Harmonised System chapters 28-38) are "sufficiently processed" to qualify as local origin if non-local content is below a given threshold (varies by material but typically 40% or lower of product value). </li>
<li>Products incorporating non-local content that have been "sufficiently processed" count as 100% local when subsequently used as input to manufacturing another product. </li>
<li>PEM rules also allow for "Accounting Segregation" to cater for use of interchangeable stocks of local and non-local material as input in manufacturing a product.</li>
</ul>
75% of UK chemical imports are from the EU, suggesting that most inputs to UK chemical manufacturing will be of UK or EU origin, hence qualifying as local origin under bi-lateral cumulation as part of an EU-UK FTA. UK chemical products will likely meet the RoO threshold to qualify for preferential rates.<br />
<br />
So determining whether a product qualifies as local origin depends on knowing the source and cost of inputs to the manufacturing process - i.e. the core business processes of supply chain management and accounting. Where non-originating materials are used in the chemical industry, they would have to be tracked through several stages of processing - but tracking & auditing use of materials in the manufacturing process is surely standard practice ?<br />
<br />
<div>
60% of UK chemical exports are to the EU. Hence 40% are to the rest of the world - is none of this via preferential RoO ? Switzerland has an FTA with the EU and is a non-EU destination for UK chemical exports - is no advantage taken at all of preferential rates ? It is also worth noting that Switzerland has a successful chemical / pharmaceutical industry (larger than the UK's) integrated into European supply chains - despite the fact that Switzerland is outside the EU Customs Union and so faces preferential RoO barriers.</div>
<br />
It is hard to believe that the UK chemical industry makes no use of preferential RoO or is incapable of doing so. If third countries like Switzerland make use of preferential RoO for chemicals, then the UK chemical industry should take a leaf out of their book, make a one-off investment to upgrade systems to cater for RoO in order to utilise current third country FTAs as well as a future UK-EU FTA.<br />
<div>
<br /></div>
<u><b>Conclusion</b></u><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">The argument that low FTA utilisation proves RoO is too burdensome is contradicted by the high utilisation reported by UNCTAD, and observations by Holmes/Jacob and Cernat that advice / information on RoO would boost exporters use of FTAs.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Indeed, IOD themselves state: "</span><i style="font-family: inherit;">Rules of origin are not insurmountable for business – indeed they currently apply to trade with a number of existing countries outside the EU." </i><span style="font-family: inherit;">If companies invest in systems to provide RoO compliance for third country FTAs (an increasing proportion of UK exports), then RoO compliance for EU trade is a relatively small additional step.</span><br />
<div style="-webkit-text-stroke-width: 0px; color: black; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; margin: 0px; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="-webkit-text-stroke-width: 0px; color: black; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; margin: 0px; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">
<span style="font-family: inherit;">A customs union with the EU cannot be justified by RoO. I will examine alternative arguments and alternative options to a Customs Union in my next post.</span></div>
<div style="-webkit-text-stroke-width: 0px; color: black; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; margin: 0px; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">
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<div style="text-align: center;">
<span style="font-family: inherit;">--0--</span><br />
<div style="text-align: start;">
<div style="text-align: left;">
<br /></div>
<div style="font-family: "times new roman"; text-align: start;">
Posts in this series:</div>
<div style="font-family: "times new roman"; text-align: start;">
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-1-no-trade-policy.html">A Brexit Turkey part 1 - No UK Trade Policy</a></div>
<div style="font-family: "times new roman"; text-align: start;">
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-2-are-rules-of.html" style="font-family: "Times New Roman";">A Brexit Turkey part 2 - Are Rules of Origin insurmountable ?</a><br />
<a href="https://my10minuteblog.blogspot.com/2018/03/a-brexit-turkey-part-3-customs-union-is.html" style="font-family: "Times New Roman";">A Brexit Turkey part 3 - Customs Union is not a Brexit solution</a></div>
</div>
</div>
</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com5tag:blogger.com,1999:blog-8156972773801079896.post-63758237080934936952018-02-23T03:14:00.003-08:002018-05-29T12:56:34.208-07:00A Brexit Turkey (part 1) - No UK Trade PolicySome bad ideas seem reluctant to die. Leaving the EU Customs Union has been stated government policy since Theresa May's Lancaster House speech, confirmed by the 2017 General Election manifestos and several parliamentary votes. Earlier this month, Theresa May again confirmed that the UK would not be part of any Customs Union with the EU after Brexit. Yet now we have the Institute of Directors (IoD) putting out a report with yet another Customs Union proposal.<br />
<br />
<b><u>The Turkey model</u></b><br />
<br />
The IoD proposal is essentially the "Turkey" model, "a" customs union bi-lateral agreement with the EU. This has been dismissed as a Brexit option on many previous occasions because of the <a href="https://www.bloomberg.com/view/articles/2017-04-12/turkey-deserves-a-better-eu-trade-deal">glaring problems of the Turkey model</a>:<br />
<ul>
<li>Described as a "partial" Customs Union, in reality this covers all industrial and processed food goods, i.e. substantially all goods except basic agriculture products (meat, dairy etc.).</li>
<li>The tariff rates for these goods are set by Brussels. Turkey has to sit out discussions at WTO/GATT on tariff reductions.</li>
<li>Turkey does not benefit from any EU Free Trade agreements (FTA), but third countries who have an FTA with the EU gain tariff free access to Turkey, without offering any reciprocal access to Turkey. Turkey considered ending its Customs Union agreement at the prospect of the EU sealing an FTA with the USA (the now defunct TTIP).</li>
<li>Turkey is obliged to harmonise with EU trade policy and negotiate FTA's with third countries to match EU FTA's. Unfortunately, a number of third countries have refused to negotiate with Turkey, as they already have tariff-free access to Turkey by virtue of their FTA with the EU.</li>
</ul>
So much for an independent trade policy. The Turkey model would leave control of trade policy in the EU's hands. The EU will effectively be able to sell tariff-free access to the UK without any involvement or reciprocal benefit for the UK. Why would any third country bother negotiating with the UK when tariff-free access would be obtained by negotiating an FTA with the EU ? For that matter, why would countries like South Korea agree to grand-father their existing EU FTA into a UK bi-lateral FTA when it can get tariff-free access to UK for nothing ?<br />
<div>
<br /></div>
<div>
This issue of FTA asymmetry prompted the EU and Turkey to start negotiating with 3rd countries in parallel. In one case, (Malaysia), Turkey has sealed an FTA ahead of the EU (EU-Malaysia talks stalled over a dispute) - meaning Malaysian goods have tariff-free access to the EU by trans-shipping via Turkey. The EU is aiming to address FTA asymmetry via an <a href="http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/599319/EPRS_BRI%282017%29599319_EN.pdf">upgrade to the Turkey Customs Union agreement</a> which will provide Turkey with observer status at EU FTA negotiations. But the relationship is still clearly based on Turkey following the EU's lead on FTA's.<br />
<br />
So it is difficult to see how the EU would grant the UK freedom to negotiate its own FTAs while in a customs union. Would the EU tolerate an UK-USA FTA that meant USA had tariff-free access to the EU market without the EU getting tariff-free access to the USA ? Of course not. </div>
<div>
<br /></div>
<div>
<b><u>Trade in Services</u></b></div>
<div>
<u style="font-weight: 700;"><br /></u>The IOD sugarcoat their "partial" customs union proposal by pointing out areas where the UK would be free to negotiate - tariffs for basic agricultural goods and more interestingly services. However, the freedom to negotiate on services is hardly an argument for a customs union, as such freedom also comes with an FTA or the WTO option. It is in fact an argument against the Single Market - which would tie our hands on services regulation. Is this a tacit admission of defeat in the argument for retaining single market membership ?<br />
<span style="font-family: inherit;"><br /></span>
<br />
<div style="color: black; font-style: normal; font-weight: 400; letter-spacing: normal; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">
<div style="margin: 0px;">
<b><u><span style="font-family: inherit;">Conclusion</span></u></b></div>
<div style="margin: 0px;">
<b><u><span style="font-family: inherit;"><br /></span></u></b></div>
<div style="margin: 0px;">
<span style="font-family: inherit;">The proposed Customs Union with the EU would be far worse for trade policy than EU membership, where at least the UK benefits from EU FTA's and has a vote. A Customs Union does not confer freedom to negotiate on services, that only comes by leaving the single market (which the IOD have opposed).</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">So what is the argument for a Customs Union ? IOD rest their case on Rules of Origin (RoO), which I will examine in my <a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-2-are-rules-of.html">next post</a>.</span><br />
<div style="text-align: center;">
<span style="font-family: inherit;">--0--</span></div>
<br />
<div style="font-family: "times new roman";">
Posts in this series:</div>
<div style="font-family: "times new roman";">
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-1-no-trade-policy.html">A Brexit Turkey part 1 - No UK Trade Policy</a></div>
<div style="font-family: "times new roman";">
<a href="https://my10minuteblog.blogspot.co.uk/2018/02/a-brexit-turkey-part-2-are-rules-of.html" style="font-family: "Times New Roman";">A Brexit Turkey part 2 - Are Rules of Origin insurmountable ?</a><br />
<a href="https://my10minuteblog.blogspot.com/2018/03/a-brexit-turkey-part-3-customs-union-is.html" style="font-family: "Times New Roman";">A Brexit Turkey part 3 - Customs Union is not a Brexit solution</a></div>
<span style="font-family: inherit;"></span>
<span style="font-family: inherit;"><br /></span></div>
</div>
</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com4tag:blogger.com,1999:blog-8156972773801079896.post-2654763952418427782018-02-19T02:50:00.002-08:002018-03-24T07:29:46.023-07:00End of Project Fear ?Will we ever see an end to Project Fear ?<br />
<br />
At the height of the EU Referendum campaign, George Osborne's Treasury produced a report predicting that even the act of voting to Leave the EU would cause immediate economic disaster. Even arch-Remainer <a href="https://twitter.com/darrengrimes_/status/959760135848591362">Kenneth Clarke has poured scorn on these Treasury figures</a>.<br />
<div>
<br /></div>
Even EU officials in Brussels believe Project Fear is overdone, as <a href="https://twitter.com/nick_gutteridge/status/953346935250931713">Nick Gutteridge (Brussels reporter) observed</a>: <i>"I’m yet to speak to a single EU diplomat or official who thinks the economic fallout for the UK from Brexit will be anywhere near as bad as many British commentators predict." </i>Even in Brussels, the expectation is a CETA plus outcome and no Brexit recession.<br />
<br />
There is a problem at the root of Project Fear - it is an attempt to argue that a marginal increase in cost of trade with the EU trumps all other concerns (political & economic), even when exports to the EU account for just 10% of UK economy. This is exactly the same argument made for the euro - <i>"10% of our economy depends on EU, 3m jobs at risk"</i> . Allegedly, the UK retaining the £ would result in the City & UK car industry decamping en-masse to the EU to escape the cost of currency exchange in UK-EU. Some 15-plus years on, it is clear that these economic forecasts were pure bunkum.<br />
<br />
Of course, any forecast over a timescale of 15-years will almost certainly be proved wrong. Yet, in recent weeks we have seen leaked Treasury forecasts, suggesting UK GDP could be 8% lower over a 15 year timescale due to Brexit, paraded as "facts" by Remain supporters.<br />
<br />
It should also be noted that this forecast of 8% does not imply a recession, rather it is a forecast of slower growth, i.e. 1.5% per annum rather than 2% per annum in coming decade or so, so an economy worth ~£2tn at start of a year will only increase by ~£30bn instead of ~£40bn over that year, so that each year economic activity is ~0.5% GDP or £10bn lower than the counter-factual scenario. Interestingly, UK membership of the EU also costs ~0.5% net per annum, i.e. ~£10bn economic activity taken out of ~£2tn UK economy and diverted to activity in Brussels or other EU member states. <br />
<br />
It's not clear whether the Treasury forecasts have allowed for the gain from ending UK's net EU contributions in their forecasts. But it is interesting to compare the Remain campaign description of these 0.5% per annum contributions as a small price to pay for the economic benefits we get in return (as in a £70bn per annum trade deficit with the EU).<br />
<br />
Given UK exports to the EU account for just 10% of UK GDP, the forecast 8% loss of GDP is equivalent to losing 80% of our exports to the EU. While there will be a marginal increase in cost of trade with the EU, but this does not mean that UK exports to the EU will effectively cease - just as marginal costs arising from rejecting the euro did not mean the loss of 3 million jobs. By contrast, a 2017 <a href="http://voxeu.org/article/short-term-impact-brexit-uk-exports">paper by World Bank & UNCTAD economists</a> suggested UK exports are "price inelastic" and that in the event of a No Deal scenario, UK exports to the EU would drop by no more than 2% - a negligible impact.<br />
<div>
<br /></div>
The Treasury also forecast that a Free Trade Agreement (FTA) with the USA would provide only 0.2% GDP gain over the same timescale. The USA economy is larger than the EU27 and with all the trade benefits of EU membership, UK exports to EU27 are about 3 times larger than UK exports to the USA. Yet the Treasury forecast suggests a GDP impact from Brexit and reduced EU trade would be some 40 times larger (not 3) than GDP impact of an FTA with USA. The Treasury forecast seems to assume that trade with the EU is uniquely beneficial to UK growth.<br />
<br />
Historical data does not support this assumption that EU membership has been uniquely beneficial:<br />
- In 2012, to commemorate 20 years of the Single Market and removal of internal customs borders, the <a href="https://publications.europa.eu/en/publication-detail/-/publication/a20d1a53-8eea-41cf-99dd-1be049cfb2e2/language-en">EU Commission published a report</a> claiming a 2% GDP gain (averaged across the member states). Even that figure is inflated, as the economic downturn from 2008 onwards was ignored.<br />
- <a href="https://www.bertelsmann-stiftung.de/en/publications/publication/did/policy-brief-201402-20-years-of-the-european-single-market-growth-effects-of-eu-integration/">A similar study by European (and generally pro-EU) think tank Bertelsman</a> concluded that the UK had only gained 1% GDP (with Germany the winner with a gain of 2.3% GDP).<br />
- In the same period 1992-2012, the UK economy grew by 67%. The introduction of the Single Market & removal of Customs Borders within the EU barely registers.<br />
<br />
Economies and markets will always adjust to shocks such as Brexit. Trade and commercial activity will divert to the domestic economy and markets with the Rest of the World. In fact, there is a strong case that the UK needs to pivot away from an EU-centric economy:<br />
- The EU's share of the global economy is in decline (having halved from a high of 30%, less once UK leaves).<br />
- As even the EU Commission concedes, 90% of global growth will be outside the EU in coming decades.<br />
- The share of UK exports to the EU (as opposed to the rest of the world) has steadily declined from a high of 55% at the turn of the century to 43% today, less if the Rotterdam/Antwerp effects are taken into account.<br />
- UK trade with the EU has shown a persistent and widening trade deficit, whereas UK trade with the Rest of the World is broadly in balance.<br />
<br />
All of which is a long way round to saying overblown economic scare stories, which have no foundation, take no account of other gains, ignore the 90% of economy that does not export to the EU - are pure distraction. As we well know, the decision to leave the EU was to restore national self-Government & reject a future as a mere province in the Brussels bureaucratic empire. The whole sorry story of our entanglement with the EU has been attempts to deny the true aims of the EU coupled with Project Fear (right back to 1975 Referendum). June 23rd 2016 was the end of that.<br />
<br />
<br />
<br />
<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com4tag:blogger.com,1999:blog-8156972773801079896.post-10970295594178816272017-12-13T11:02:00.001-08:002017-12-13T11:02:16.082-08:00Brexit Briefing - Customs<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;"> As
part of a continuing series of posts examining the Single Market and
Norway/Flexcit option (as expressed in a "Brexit Briefing"
blog post by Pete North) this post will examine claims made regarding
the Customs Union.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;"><i><br />
</i><i><u><b>Customs
Agreement</b></u></i></span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">North
refers to requiring a customs agreement in addition to Single Market
membership. Which is a tacit admission that EFTA EEA does not address
issues arising from leaving the EU’s Customs Union, as I covered in
an <a href="http://euquestion.blogspot.co.uk/2017/07/leaving-customs-union-part-4.html">EU
Question blog post</a>.</span></div>
<ul>
<li>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">The
EEA agreement does include 2 protocols on customs matters (Protocols
<a href="http://www.efta.int/sites/default/files/documents/legal-texts/eea/the-eea-agreement/Protocols%20to%20the%20Agreement/protocol10.pdf">10</a>
& <a href="http://www.efta.int/sites/default/files/documents/legal-texts/eea/the-eea-agreement/Protocols%20to%20the%20Agreement/protocol11.pdf">11</a>),
but these are just basic framework & mutual assistance
agreements common to many <a href="http://ec.europa.eu/taxation_customs/customs/policy_issues/international_customs_agreements">EU
customs co-operation agreements with 3rd countries</a>.</span></div>
</li>
<li>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><span style="color: black;">As
<a href="http://www.efta.int/eea/policy-areas/goods/customs-trade-facilitation/customs-matters">EFTA's
web page on Customs Matters</a>
states: <i>“The EEA is
not a customs union, thus most of the activities in the customs
field are not relevant to the EEA Agreement …. Norway and
Switzerland were able to find simplified solutions through bilateral
negotiations”</i>. </span>
</span></div>
</li>
<li>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><span style="color: black;">N</span><span style="color: black;">orway
and </span><span style="color: black;">non-EEA
</span><span style="color: black;">Switzerland
have conclude</span><span style="color: black;">d</span><span style="color: black;">
Mutual Recognition Agreements </span><span style="color: black;">under
the EU’s </span><a href="http://ec.europa.eu/taxation_customs/general-information-customs/customs-security/authorised-economic-operator-aeo/authorised-economic-operator-aeo_en">Authorised
Economic Operator (AEO)</a> scheme,
whereby
authorised operators can benefit from simplified customs procedures
and “fast-track” through customs controls. The
EU AEO scheme is based on the<a href="http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/~/media/55F00628A9F94827B58ECA90C0F84F7F.ashx">
WCO SAFE framework</a>, which encourages all WCO members to enter
into such
mutual
recognition agreements. The
EU has number of <a href="https://ec.europa.eu/taxation_customs/general-information-customs/customs-security/authorised-economic-operator-aeo/authorised-economic-operator-aeo_en#mutual">AEO</a><a href="https://ec.europa.eu/taxation_customs/general-information-customs/customs-security/authorised-economic-operator-aeo/authorised-economic-operator-aeo_en#mutual">
agreements with third countries</a>.</span></div>
</li>
<li>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;">Norway
and non-EEA Switzerland have also concluded <a href="https://ec.europa.eu/taxation_customs/general-information-customs/customs-security/security_en">bi-lateral
customs security agreements</a>, relieving traders of the obligation
to lodge an ENS declaration at the customs office of first entry</span></div>
</li>
<li>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;">The
<a href="http://ec.europa.eu/taxation_customs/business/customs-procedures/what-is-customs-transit/common-union-transit_en">Common
Transit Convention</a> is a key pan-european treaty which
allows goods to move though territories with customs formalities
suspended until the goods either reach their destination or are
exported outside the territories of the signatories. Signatories
include non-EEA Switzerland, Turkey and
non-EU Balkan states..
</span></div>
</li>
</ul>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;">EEA
membership neither provides these arrangements, nor is EEA a
pre-requisite for
a customs agreement.
Participation in the Single Market is only marginally more relevant
to customs co-operation than participation in the Eurovision song
contest.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<i><u><b><span style="font-family: inherit;">Rules
of Origin (RoO)</span></b></u></i></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">North
suggests we need a customs agreement that deals with Rules of Origin
(RoO). Rules of Origin (RoO) paperwork proves where a product
originates from, based on where raw materials are sourced from or
where substantive processing took place, in order to determine
whether goods:</span></div>
<ul><span style="font-family: inherit;">
<li>Qualify
for a preferential tariff under a Free Trade Agreement (FTA).</li>
<li>Fall
subject to Trade Defence Measures, e.g. products containing Chinese
steel are subject to anti-dumping measures and hence a high tariff.</li>
<li>Count
towards a Tariff Rate Quota, e.g. meat from New Zealand is subject
to a lower tariff until a certain quantity has been imported, when a
higher tariff applies.</li>
</span></ul>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;">North
suggests we can avoid RoO by harmonising our tariff regime with the
EU's Common External Tariff (CET). Clearly that is insufficient, we
will also need to harmonise Trade Defence Measures and continue to
share TRQ's with the EU.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">Moreover,
North has got very confused with regard to third country agreements,
suggesting (wrongly) that the UK signing new FTA's with third
countries risks higher rates of inspections to check compliance with
single market product rules. As per the EU <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C:2016:272:FULL&from=EN">Blue Guide</a>, importers will
ensure manufacturers have fulfilled their obligations regarding
conformity assessment – there is no constraint on where materials
are sourced from. Manufacturers / importers with established track
record of compliance will continue to be considered low-risk unless
market surveillance feedback or other intelligence suggests standards
have been breached.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">The
real issue is that goods from third countries might circumvent EU
tariffs if shipped via the UK – which is precisely the point of
RoO. It is also why to escape RoO, UK trade policy would have to be
subordinate to the EU's trade policy. The UK would only be able to
agree preferential trade with a third country in so far as it mirrors
the EU's agreement. Moreover, the EU could sign new FTA's with third
countries meaning that goods from said third country would have
preferential access to the UK without reciprocal access for UK to the
said third country market.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br /></span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;">To avoid RoO, the EU would be trusting the UK to maintain its customs border in line with EU policy, preventing third country goods circumventing EU tariffs. The EU will likely demand continued oversight via OLAF (EU's anti-fraud body) and European Court of Auditors (ECA) and that the UK continues to send the bulk of import duty collected to Brussels.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;"><i><u><b>Frictionless
Border ?</b></u></i></span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">Outside
the Customs Union, import VAT also applies at the border (although
importers can usually reclaim this). This could be avoided by staying
in the EU's VAT union, which would mean the UK remaining fully
subject to the EU’s VAT rules and a proportion of UK VAT being paid
to the EU. Customs Declarations will also be required. Trade
facilitation measures can reduce these administrative burdens (e.g.
AEO scheme and Union Customs Code provides for monthly self
assessment), but they are not eliminated.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br /></span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">It
seems to me the only way to maintain the current “frictionless border” with
the EU is to remain in the EU Customs Union, which in turn requires
membership of the EU. Turkey, which has a partial Customs Union “with”
the EU, still has a customs border where Customs Declarations,
RoO, Import VAT all apply.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="color: black; font-family: inherit;">So
a transition period that maintains the current border arrangements
will require the UK to remain "effectively" in the EU by adopting the EU acquis in the areas
of the Customs Union and Common Commercial Policy (not covered by
EFTA EEA). The vital difference would be that the UK will regain competence
to negotiate future trade agreements (both with the EU and third
countries) while continuing to benefit from current trade
arrangements with the EU and third countries. Which is why an Article
50 extension is not suitable for transition, as the UK would still be
an EU member and would still not have competence to negotiate UK trade
agreements.</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><br />
</span></div>
<div style="line-height: 100%; margin-bottom: 0cm;">
<span style="font-family: inherit;"><span style="color: black;">A
longer term arrangement shadowing the EU Customs Union seems
infeasible. </span><span style="color: black;">The
EU has no such arrangements with any third country (including the
EFTA EEA states). </span><span style="color: black;">Continuing
to forward a proportion of VAT and Import Duty to the EU, remaining
subordinate to the EU's VAT and Trade policy would be in conflict
with the Government's stated aims. The UK Government must make
preparations in terms of customs infrastructure and trade
facilitation to mitigate the impact of our inevitable departure from the EU Customs Union.</span></span></div>
<br />
<div style="line-height: 100%; margin-bottom: 0cm;">
<br /></div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com4tag:blogger.com,1999:blog-8156972773801079896.post-66479120611864715432017-11-16T10:38:00.000-08:002017-11-17T21:48:59.282-08:00Brexit Briefing - SPS RegulationsAs part of a continuing series of posts examining the Single Market and Norway/Flexcit option (as expressed in a <a href="http://peterjnorth.blogspot.co.uk/2017/10/brexit-briefing.html">"Brexit Briefing" blog post by Pete North</a>). this post will examine the claims made for EEA Sanitary & Phyto-Sanitary (SPS) regulations (i.e. regulations covering animal and plant health) and their relation to global standards.<br />
<br />
<i><u><b>WTP SPS Agreement</b></u></i><br />
<br />
The <a href="https://www.wto.org/english/docs_e/legal_e/15sps_01_e.htm">WTO SPS agreement</a> encourages the use of international SPS standards. Article 3.1 states <i>"Members shall base their sanitary or phytosanitary measures on international standards, guidelines or recommendations". </i>Article 3.4 identifies three organisations as having particular relevance:<br />
<ul>
<li><a href="http://www.fao.org/fao-who-codexalimentarius/en/">Codex Alimentarius</a> established by <a href="http://www.fao.org/home/en/">FAO (Food and Agriculture Organisation of the UNO)</a> and the World Health Organization in 1963 to develop harmonised international food standards. </li>
<li><a href="http://www.oie.int/about-us/">OIE (Office International des Epizooties)</a> intergovernmental organisation responsible for improving animal health worldwide, established by an international agreement in 1924</li>
<li><a href="https://www.ippc.int/en/">IPPC (International Plant Protection Convention)</a> an international agreement on plant health.</li>
</ul>
<div>
UNECE also provide agricultural quality standards and is party to an agreement with Codex (<a href="http://www.unece.org/fileadmin/DAM/trade/agr/AboutUs/GenevaUnderstanding_E.pdf">the "Geneva Understanding"</a>) in order to avoid duplication of work. </div>
<br />
However, Article 3.3 of the WTO SPS Agreement provides a get-out: "<i>Members may introduce or maintain sanitary or phytosanitary measures which result in a higher level of sanitary or phytosanitary protection than would be achieved by measures based on the relevant international standards, guidelines or recommendations". </i><br />
<i><br /></i>
<b style="font-style: italic;"><u>EU SPS Regulations</u></b><br />
<i><br /></i>EEA SPS regulations make up 1,507 of the 5,584 <a href="http://www.efta.int/eea-lex?f[0]=field_case_status_short_desc%3A14&f[1]=field_annex_chapter%3A586">EEA regulations in force</a>, i.e. approximately 27% (as of 16th November 2017). It is true that the great majority of these SPS regulations are based on international standards (primarily from Codex and UNECE). However, as explained in <a href="https://www.linkedin.com/pulse/tariffs-may-easy-part-brexit-uk-farming-derrick-wilkinson">Derrick Wilkinson's blog</a>, the EU imposes severe restrictions or bans on a wide range of plant protection products (PPPs), veterinary pharmaceuticals (VPs) and biotechnologies. <br />
<br />
This point has attracted media coverage recently: an <a href="http://www.telegraph.co.uk/news/2017/10/14/rice-become-expensive-due-disastrous-eu-import-rules/">EU Commission decision on Basmati rice</a>, slashed allowable levels of the pesticide Tricyclazole (used for 30 years) to a hundredth of the current legal level; <a href="http://www.telegraph.co.uk/business/2017/11/06/dont-let-eu-dictate-brexit-us-warns-britain/">US Trade Secretary Wilbur Ross described EU regulations as "unscientific"</a>, referring to the ban on chlorine-washed chicken and also Genetically Modified Organisms (GMO).<br />
<br />
Commenting on the speech by US Trade Secretary Ross, <a href="https://www.ft.com/content/f315f260-c3ab-11e7-b2bb-322b2cb39656">Alan Beattie in the FT</a> notes that the EU has lost several cases on food regulation at the WTO to the US, and also comments: <i>"Brussels’ cautious interpretation of the “precautionary principle” retards growth and innovation and is exploited by protectionist lobbies. Its food regulations, which frequently disadvantage farmers in developing countries, often bear the marks of public prejudice and domestic lobbying rather than science." </i><br />
<br />
<b style="font-style: italic;"><u>EU SPS Enforcement</u></b><br />
<div>
<br />
The <a href="https://www.wto.org/english/docs_e/legal_e/15sps_01_e.htm">WTO SPS agreement</a> also covers Control, Inspection and Approval Procedures (Article 8 & Annex C). Unsurprisingly, the EU has erected a highly regulated system of <a href="https://www.gov.uk/guidance/port-health-authorities-monitoring-of-food-imports">food safety measures</a> for imports from third countries (i.e. outside the single Market).<br />
<br />
Products of animal origin (POAO), i.e. live animals and animal products including meat and dairy, imported from third countries require <a href="https://ec.europa.eu/food/safety/international_affairs/trade/non-eu-countries_en">EU approval of the third country and establishments</a>. Products must be accompanied by relevant veterinary certificates and imported via a nominated <a href="https://ec.europa.eu/food/animals/vet-border-control_en">Border Inspection Post (BIP)</a> where they are subject to:</div>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
(i) documentary check - health certificates and any accompanying laboratory test results;</div>
</blockquote>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
(ii) identity check - container seals, packaging of the goods, labelling and health marking;</div>
</blockquote>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
(iii) physical check - packaging will be opened, sight, smell, taste assessment (where appropriate), samples may also be taken for laboratory assessment. The frequency of POAO physical checks (governed by <a href="http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A31994D0360">Commission Decision 94/360/EC</a>) is:</div>
</blockquote>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
▪ 20 per cent for meat and fish;</div>
</blockquote>
</blockquote>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
▪ 50 per cent for poultry meat, honey and dairy products;</div>
</blockquote>
</blockquote>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
▪ 1-10 per cent for inedible POAO, such as hay.</div>
</blockquote>
</blockquote>
<div>
<br />
Non-animal products (i.e. plants and plant products) from third countries may be subject to import checks, determined on the basis of risk analysis. In addition, specific controls are applied to <span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">certain </span>non-animal <span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">products originating from certain countries </span></div>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">(i) Some products </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">must have a </span><a href="https://ec.europa.eu/food/plant/plant_health_biosecurity/non_eu_trade_en" style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">phytosanitary certificate</a> under <a href="http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32000L0029" style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Directive 2000/29/EC</a><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">, guaranteeing they have been properly inspected; are free from harmful organisms; and conform with relevant plant health regulations.</span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"> </span></div>
</blockquote>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;">
<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">(ii) Some products are classified as '<a href="https://www.food.gov.uk/business-industry/imports/banned_restricted/highrisknonpoao">High-risk' products of non-animal origin</a> under <a href="http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:194:0011:0021:EN:PDF">Regulation EC/669/2009</a>. These products must be imported via a Designated Port of Entry (DPE) to undergo checks similar to those required for products of animal origin (i.e. documentary, identity and physical checks at a set percentage rate).</span></div>
</blockquote>
<br />
The <a href="https://www.wto.org/english/docs_e/legal_e/15sps_01_e.htm">WTO SPS agreement</a> encourages members to enter into equivalence agreements (Article 4), which can reduce non-tariff barriers for third countries. Switzerland copies all EU SPS regulations and has an <span style="color: navy; font-family: inherit;"><span lang="zxx"><u>e<a href="http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:352:0023:0023:EN:PDF">quivalence agreement with the EU</a></u></span></span><span style="font-family: inherit;"> </span>allowing all agricultural products to be traded under the same conditions as intra-EU trade. The EU recognises <span style="color: #222222;">other third country regimes such as Canada and New Zealand as essentially equivalent and </span><span style="color: #222222;">lower inspection rates apply.</span><br />
<br />
<div>
By contrast, trade within the EU/Single Market is mostly exempt from these checks. EU SPS regulations are enforced via national agencies (<a href="https://www.food.gov.uk/about-us/agencyandeurope">Food Safety Agency</a> (FSA) in the UK) who directly monitor establishments. <a href="https://www.gov.uk/guidance/moving-live-animals-or-animal-products-as-part-of-eu-trade">Live animals must travel with a veterinary health certificate</a> (although there are specific exemptions for horses). A limited number of <a href="https://ec.europa.eu/food/plant/plant_health_biosecurity/trade_eu_en">plant products originating within the EU are also subject to health controls</a> under <a href="http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32000L0029" style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Directive 2000/29/EC</a>, requiring a "plant passport" once they have passed all EU checks.<br />
<br />
<b style="font-style: italic;"><u>Future UK-EU trade</u></b><br />
<br />
Outside the Single Market, UK exporters will face third country barriers. Meat and dairy exports will be heavily impacted. However, given UK convergence with EU SPS regulations and the established track record of the FSA in monitoring UK establishments, an EU refusal to approve UK establishments and recognise equivalence in line with agreements enjoyed by other third countries (e.g. Canada) would constitute discrimination under WTO law.<br />
<br />
Non-animal products should see little impact - while all third country imports may be subject to inspections based on risk analysis, there seems little reason to believe that EU member states customs authorities will suddenly deem UK products as high risk and divert resources away from inspecting known sources of risk.<br />
<br />
An acrimonious "No Deal" impasse could see the EU could drag its heels on approvals and equivalence agreement. But it should be borne in mind that since the UK is mirroring EU law, trade barriers will apply in both directions. The UK currently imports 3 times more than it exports to the EU in the agrifood sector. In any case, high tariffs in this sector would severely diminish UK-EU agrifood trade. UK response should be a mix of import substitution and pivot to global agricultural trade.<br />
<br />
Executing such a pivot on agricultural trade (primarily meat & dairy) is not at all straightforward given the complex and interwoven nature of food supply chains. The UK would need (i) a carefully designed subsidy scheme to support farmers and facilitate switching of activity; (ii) lowering of agricultural tariff barriers (via TRQs and FTAs) and non-tariff barriers (liberalised SPS regime and equivalence agreements) with the rest of the world.<br />
<br />
<i><u><b>Conclusions</b></u></i><br />
<br />
Contrary to claims made by supporters of Norway/Flexcit option, adopting EU SPS regulations is not just adopting global standards and we cannot influence EU SPS non-tariff barriers at a "global" level. As Alan Beattie put it in his <a href="https://www.ft.com/content/f315f260-c3ab-11e7-b2bb-322b2cb39656">FT article</a> "<i>product regulation is not global; international laws to constrain national rules are weak". </i>US Trade Secretary Ross also made clear that Brexit presents us with a distinct choice in this sector.<br />
<br />
We could stay inside the protectionist EU SPS regime which provides barriers to trade with the rest of the world, but avoids barriers in trade with the EU (primarily for live animal, meat & dairy products). This avoids adding another issue to the Irish border, but at present no solution seems to satisfy the EU/Ireland short of separating Northern Ireland from the UK.<br />
<br />
Alternatively we can break out of the EU regime and trade freely with the rest of the world, while facing similar barriers to agricultural trade with the EU as other third countries. Many EU FTA's founder on EU protectionism in agriculture. Developing economies are locked out of the EU's market. A Swiss-USA FTA was abandoned because the Swiss are tied to the EU SPS regime and could not offer liberalisation on agriculture.<br />
<br />
For me, breaking free from EU SPS regulations is the obvious choice. While a creative solution is needed for the Irish border, creative thinking is already needed to address many Irish border concerns beyond SPS regulations. The positive opportunities are simply too good to turn down.</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com5tag:blogger.com,1999:blog-8156972773801079896.post-61848463305954710232017-11-06T16:43:00.000-08:002017-11-07T18:23:30.245-08:00Brexit Briefing - Technical RegulationsAs part of a continuing series of posts examining the Single Market and Norway/Flexcit option (as expressed in a <a href="http://peterjnorth.blogspot.co.uk/2017/10/brexit-briefing.html">"Brexit Briefing" blog post by Pete North</a>). this post will examine the claims made for EEA technical regulations and their relation to global standards.<br />
<br />
<i><u><b>EEA Technical Regulations versus Global standards</b></u></i><br />
<div>
<i><u><b><br /></b></u></i></div>
A central argument for the Norway/Flexcit option is the claim that EU/EEA regulations are increasingly based on global standards and since an independent UK would base domestic regulations on the same global standards, there is no point in leaving the Single Market. While this means the UK remains a "rule-taker" with respect to the EU, it is also claimed that the UK can use its new freedom in international organisations to shape global standards and so influence the EU/EEA regulations it is still subject to. A seductive argument, but is it true ?<br />
<br />
EEA technical regulations make up 1,972 of the 5,591 regulations in the <a href="http://www.efta.int/eea-lex?f[0]=field_case_status_short_desc%3A14">EEA acquis</a>, i.e. approximately 35% (as of 6th November 2017). The <a href="ftp://ftp.cencenelec.eu/EN/AboutUs/InFigures/CEN-CENELEC_StatPack2016-Q2.pdf">EU's 2016 standards bodies report</a> provides a measure of how aligned EEA regulations are with global standards: 58% of CENELEC standards cited in EEA technical regulations are identical to IEC standards; 24% of CEN standards cited in EEA technical regulations are identical to ISO.<br />
<br />
The <a href="https://ustr.gov/sites/default/files/2016-NTE-Report-FINAL.pdf">US Trade Department Report for 2016</a> provides insight to the EU's attitude to international technical standards. While in theory the EU allows producers to use international (non-EU) standards to demonstrate product safety, in practice it is prohibitively difficult and expensive. US exporters feel compelled to use harmonised European (EN) standards <i>"...even if the U.S. products are produced according to relevant international standards providing similar or even higher safety levels."</i><br />
<i><br /></i>
The same report also illustrates that even the US has little influence over harmonised European (EN) standards "..<i>when a U.S. </i><i>producer uses an EN it is likely using a standard that has been developed through a process in which it had </i><i>no meaningful opportunity to participate. This is particularly the case for SMEs and other companies that </i><i>do not have a European presence."</i><br />
<i><br /></i>
This reality is is in stark contrast to the claims of "global regulations" used to support the Norway/Flexcit option. EEA technical regulations are EU-centric rather than global and are not open to outside influence or directed by global bodies (if anything, the EU looks to upload its standards to ISO rather than the reverse). The EU erects barriers against use of recognised non-EU international standards. <a href="https://www.wto.org/english/docs_e/legal_e/17-tbt_e.htm">WTO TBT Agreement</a> Article 2.4 (encouraging use of international standards) does not appear to be the redundancy notice for the EU's Single Market that Norway/Flexcit advocates suggest.<br />
<br />
<b style="font-style: italic;"><u>Continued UK participation in European standards organisations</u></b><br />
<br />
<a href="https://www.bsigroup.com/en-GB/about-bsi/uk-national-standards-body/EUReferendum/">BSI (British Standards Institute) aims to retain membership of CEN and CENELEC post-Brexit</a>, even after leaving the Single Market (EFTA states including non-EEA Switzerland, EU accession states and recently Turkey are also members with voting rights). membership would provide the UK with a continuing voice and vote on European (EN) standards, but requires EN standards are adopted as national standards and any conflicting standards are withdrawn.<br />
<br />
<a href="https://www.ukas.com/news/ukas-contributes-to-brexit-discussions/">Similarly, UKAS (UK Accreditation Service) are aiming for continued membership of EA</a> (European Accreditation) in addition to membership of global accreditation bodies ILAC and IAF. This would maintain recognition of UKAS as the UK National Accreditation Body and recognition of certificates issued by UKAS and and UKAS accredited organisations (i.e. UK Notified Bodies) throughout the EU.<br />
<br />
However, both <a href="ftp://ftp.cencenelec.eu/EN/EuropeanStandardization/Guides/20_CENCLCGuide20.pdf">CEN/CENELEC membership criteria</a> and <a href="http://www.european-accreditation.org/ea-members">EA membership criteria</a> requires EU/EFTA membership, or candidate for EFTA/EU membership with established target date for accession. The <a href="http://uk.businessinsider.com/david-davis-rules-out-eea-efta-brexit-2017-9">UK has rejected EFTA membership and the Single Market</a>, so continued UK membership of CEN/CENELEC and EA must be open to question.<br />
<br />
<i><u><b>Future UK-EU trade relationship</b></u></i><br />
<br />
EEA membership or even just membership of CEN/CENELEC requires continued harmonisation with EU standards, without divergence. However, being locked into EN standards prevents the UK from using or recognising alternative international standards - which in turn raises technical barriers with non-EU countries, notably the US. Nor are EN standards superior to other standards. For example, <a href="http://doortofreedom.uk/technical-barriers-to-trade-in-the-absence-of-a-mutual-recognition-agreement">Andrew Chapman's blog post on Technical Barriers to Trade</a> looked closely at anti-slip footwear regulation (EN ISO 13287:2012) and found evidence that the test is not a reliable indicator of the safety of footwear, so much so that the British Health and Safety Laboratory uses an alternative human-based ramp test.<br />
<br />
Some argue that because the EU is our largest market (outside the domestic UK market), we must inevitably remain yoked to the EU's technical standards and regulations. But why not allow or recognise other international standards provided they meet the essential safety objectives ? Businesses focussed on the EU market will continue to use EN standards and demand the same from their supply chain, but other businesses may develop with a different focus. In some instances or sectors, the UK domestic market and/or overseas markets may exceed the value and demand of the EU market. It seems to me we should let the market decide which standards to use. While some commentators worry about a lack of "regulatory coherence" countries such as South Korea (who have FTA's with both the EU and the USA) seem to be managing quite nicely.<br />
<br />
Conformity Assessment is the main anxiety of Norway/Flexcit advocates. But as I explored in an <a href="https://euquestion.blogspot.co.uk/2017/10/leaving-single-market-product-rules.html">EU Question blog post</a>, this is easily navigable by using EN standards and an EU-based "importer". Some sectors have "pre-approval" requirements (e.g. pharmaceuticals, chemicals etc), but the solution is similar, with registrations to be held by a recognised EU based representative. For the small number of manufactured products that required third party assessment, UK notified bodies can be used provided they have a subsidiary or sub-contract relationship with an EU-based body. Consignment checking is based on risk analysis and it is unlikely that products/manufacturers/importers with a good track record of compliance will suddenly face a higher inspection rate - even without a UK-EU agreement.<br />
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A Mutual Recognition Agreement on Conformity Assessment will allow UK-based Notified Bodies to continue to be recognised in the EU (and vice versa), without needing a sub-contract or subsidiary relationship (note that <a href="https://www.wto.org/english/docs_e/legal_e/17-tbt_e.htm">WTO TBT Agreement</a> Article 6.3 encourages members to enter into MRA's on conformity assessment). A regulatory co-operation agreement covering market surveillance would continue existing co-operation and assist targeting of consignment checking by customs authorities. Such agreements are common to FTAs and are found in CETA (Canada's FTA with the EU).<br />
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A Canada style FTA with the EU would seem to offer the best solution for technical regulations. Regulatory freedom from EU-centric technical regulations combined with agreements that minimise trade friction.Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com12tag:blogger.com,1999:blog-8156972773801079896.post-62227080624311252712017-11-01T10:56:00.000-07:002017-11-01T11:45:42.735-07:00Brexit Briefing - How much EU law ?As discussed in my <a href="https://my10minuteblog.blogspot.co.uk/2017/10/the-price-of-freedom.html">previous post</a>, I will be writing a series of blogs examining the claims made for the Single Market and explaining my thoughts on the Norway/Flexcit option, as expressed in a recent blog post by Pete North.<br />
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First up is the old chestnut, how much EU law are EEA states subject to. At present, <a href="http://www.efta.int/eea-lex">EEA laws in force</a> (5,594) compared with <a href="http://eur-lex.europa.eu/browse/directories/legislation.html?displayProfile=allRelAllConsDocProfile&classification=in-force#arrow_11">EU laws in force (20,849)</a> is just under 27%. But then looking at EU Directives that apply to EEA provides a figure of around 70%. Which tells us these numbers do not add to our understanding as <a href="http://christopherhowarth.uk/how-much-eu-law-does-norway-have-to-adopt-9-or-75/">Christopher Howarth discussed on his blog</a> a couple of years ago.<br />
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Andrew Chapman also examined EEA law as a proportion of EU law in a <a href="http://doortofreedom.uk/eea-efta-acquis-proportion-6-5-9-21-28-75-or-80">May 2016 blog post</a>, with a close look at a whole range of studies, including attempts to quantify impact across policy areas and weight the impact of different legislation. Chapman's conclusion feels about right to me : <i>"For myself, I would say that under the EEA, we would have to adopt around half of EU law. Given our opt-outs from the euro, Schengen, and the area of Freedom, Security and Justice, I would say that we currently are required to adopt around, say, 80% of EU law. So, if we were to leave the EU, join EFTA, and remain in, or re-join the EEA, I would say that we would have to continue to adopt well over half, possibly getting closer to two-thirds, of what we currently adopt." </i><br />
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Perhaps the only sensible way to look at this question is to consider what areas of governance we would be still subject to and what areas do we gain freedom.<br />
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The EEA agreement covers the "four freedoms" - goods, services, capital, and of course free movement of people. So the rules and regulations of all trade and commercial activity are dictated by the EU. This also applies to all trade with third countries, which makes it impossible to negotiate on the removal of non-tariff barriers with third countries. For example, <a href="http://www.efta.int/sites/default/files/documents/legal-texts/eea/the-eea-agreement/Protocols%20to%20the%20Agreement/protocol12.pdf">Protocol 12 of the EEA agreement</a> states that the EU will take the lead in negotiating Mutual Recognition Agreements (an important tool in removing regulatory barriers to trade) with third countries.<br />
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Well at least with EFTA EEA we gain freedom from the EU common external tariff. Except that the North/Flexcit vision is that we continue to align with the EU’s tariffs in an attempt to avoid the burden of Rules of Origin. This would also mean the UK is unable to sign new Free Trade Agreements. So much for an independent UK trade policy.</div>
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In addition to the four freedoms, the EEA agreement covers a number of flanking or <a href="http://www.efta.int/eea/policy-areas/flanking-horizontal-policies" id="id_1cb8_b80e_e461_2ceb">horizontal policies</a>. Adopting EU law in areas such as Consumer Protection, Environment, Health and Safety at Work, Labour Law, Equal Treatment for Men and Women is mandatory in order to trade under the EEA agreement. EFTA EEA Governments have also taken the opportunity to sign up to (via EEA protocols) and spend taxpayers money on, all sorts of EU policies in fields as diverse as Civil Protection, Anti-Discrimination and Family Policy, Public Health etc.<br />
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Well at least with EFTA EEA we gain freedom from the Common Fisheries Policy and Common Agricultural Policy. Except that the North/Flexcit vision is that we would stay signed up to these policies for another 10 years or so, while we design and implement new UK policies. Don't tell the farmers and the fishermen.<br />
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The EEA agreement does at least exclude the EU Charter of Fundamental Rights and Monetary Union. Although the UK already had opt-outs from these as an EU member. So no gains there.<br />
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Foreign Policy and Defence are not covered by the EEA agreement. But even as we prepare to leave the EU, the <a href="http://veteransforbritain.uk/brexit-and-defence-integration-a-short-summary/">UK Government is surrendering Defence autonomy and signing up for EU Defence Union initiatives</a>. This has not got the attention it deserves as many have been fooled into thinking this will not apply to the UK once we leave the EU. In fact, the Government is aiming for an on-going relationship inside the EU's Common Security & Defence Policy - the model for this type of relationship is none other than EFTA EEA state Norway's "second country" status..<br />
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Norwegian eurosceptics also complain that the EEA agreement increases in scope over time. It is not difficult to foresee the EU wishing to see "a level playing field across the Single Market" (code for centralised Brussels legislation) in areas like taxation and welfare benefits in the near future. The EU has already signaled it's displeasure at Ireland's low tax regime. Harmonised welfare benefits has been under discussion for some time, it seems likely that the EU will use calls for reform to free movement to pursue this agenda. The EU's article 50 negotiating guidelines require the UK to agree to <i>"safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices"</i>. The EU agenda is crystal clear in these spheres.<br />
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I can see there may be a case for continuing with EU law and ECJ rulings in a few isolated cases, aviation (to retain membership of ECAA) and Euratom being the two obvious examples. But the Norway / Flexcit option accepts huge swathes of EU law and it is difficult to see what new freedom it provides. It appears to have all the disadvantages of EU membership, minus the voting rights and "seat at the EU top table".<br />
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Nor would the Norway/Flexcit option seem to provide any reassurance in terms of avoiding further EU integration, given that: (i) the EU have already stated their intention for EFTA states to become "EU Associate Members" and replace the current EEA agreement and Swiss bi-laterals; (ii) Hard-core Remainers like Nick Clegg have already stated their aim of <a href="https://my10minuteblog.blogspot.co.uk/2017/07/beware-remain-long-game.html">retaining Single Market membership as part of a long-term goal of rejoining the EU</a> as associate members.<br />
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Do we trust our political class to resist moves to expand the scope of the EEA agreement ? To avoid signing up for all sorts of other EU initiatives via EEA protocols ? to avoid a stealthy transition from Single Market to Associate Membership at some point ? I certainly don't, especially as May's Government seem to be lining us up for such a betrayal even as we are supposed to be leaving the EU - by delivering an <a href="https://my10minuteblog.blogspot.co.uk/2017/10/an-establishment-brexit.html">"Establishment" Brexit</a>. I can see little difference between the Ukraine model the Government seems to be seeking and the Norway/Flexcit model - both leave us subject to huge swathes of EU law and vulnerable to re-incorporation to "the project" of EU political union.<br />
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The more I look at Brexit, the more convinced I become that our future relationship with the EU must be based on a significant degree of separation - a CETA-based FTA plus military co-operation limited to NATO and some limited agreements on information sharing. Anything else leads us straight back to where we came from.</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-44085249509962037762017-10-30T07:43:00.001-07:002017-11-01T04:43:15.365-07:00The Price of FreedomIs there any hope that the message of the EU Referendum is getting through to our political and media Remain Establishment ? Leave voters were not thick, racist or misled - they voted to restore democratic self-government to the UK.<br />
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Moreover, since the Referendum, it has become abundantly clear that the EU is set on a course of full political union with control and governance fully centralised in Brussels. As ever, the cry heard from the EU is "more Europe". Laying bare such objectives has resulted in the phenomenon of Re-Leavers - reluctant Remain voters who now acknowledge that there is no "status quo" option and the UK simply cannot go where the EU is headed.<br />
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But then the pro-EU Establishment have never been honest about the political aims of the EU and have always tried to argue on economic grounds. Prior to joining the EEC in 1973, we were promised UK industry would sweep the world with a home market of 200m customers, yet by the time of the 1975 Referendum, we were economically diminished and could not possibly stand on our own two feet. Despite the salutary experience of the ERM in the early 1990's, by the turn of the century the pro-EU establishment were campaigning for the Euro, warning 3m jobs would be lost and UK financial services and car industry would be decimated.<br />
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So it is unsurprising that the Remain campaign was dominated by "Project Fear" and concerns over the impact of leaving the Single Market. One dire prognostication after another was rolled out, culminating in the Treasury's claim that the mere act of voting to leave the EU would trigger an immediate and painful recession - yet another totally discredited forecast.<br />
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The Referendum result suggests that the UK public have become immune to these tactics. When Philip Hammond opined on the EU Referendum that "no one voted to be poorer", he entirely missed the point. Leavers voted to be free, and if that comes with an economic cost, so be it.<br />
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But what is the economic cost of Brexit - the price of freedom from the EU ? While familiar commentators repeat their gloom-laden forecasts, there are alternative views. One <a href="http://voxeu.org/article/short-term-impact-brexit-uk-exports">recent paper by World Bank & UNCTAD economists</a> suggested that in the event of a No Deal scenario, UK exports to the EU would drop by no more than 2% - a negligible impact. Even the IMF have revised their Armageddon level forecasts, suggesting slower growth but no recession in the next few years. To put context into the figures, "No Deal" forecasts on lost GDP tend to range range from 3-5% GDP, which is roughly £60-£100bn - coincidentally the size of EU divorce bill to be paid to secure a new UK-EU trade agreement. According to economic forecasts, deal or no deal, the price of freedom seems to be about the same.<br />
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Of course, economies and markets will always adjust to shocks such as Brexit. If trade with the EU becomes more expensive, trade and commercial activity will divert to the domestic economy and markets with the Rest of the World. In fact, the share of UK exports to the EU has already declined from a high of 55% at the turn of the century to 43% today, less if the Rotterdam effect is taken into account.<br />
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Furthermore, a pivot away from an EU-centric economy is a necessity going forwards. The EU's share of the global economy is in decline (having halved from a high of 30%, even less once UK leaves). 90% of global growth will be outside the EU in future decades. The EU continues to suffer from the baleful effects of the euro and an anti-innovation regulatory regime. Leaving the EU is essential for our long-term economic prospects as well as for our freedom.<br />
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<a href="http://www.economistsforfreetrade.com/News/brexit-could-boost-uk-economy-by-135-billion-say-top-economists/">Economists for Free Trade</a> go further and conclude that leaving what they view as the mercantilist EU / Single Market, designed to favour exports of German manufacturing and French agriculture, will bring a 6.8% GDP gain amounting to £135bn.<br />
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Pro-EU commentators pour cold water on the global free trade opportunity provided by Brexit. Recently, pro-EU Sam Lowe claimed that NAFTA had only added 0.5% GDP, which he describes as "within rounding error". Yet the same commentators say it is an act of economic madness to leave the EU trade bloc. This of course ignores the obvious point that the EU is not simply a trade bloc, but also begs the question, how much value is the Single Market ?<br />
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In 2012, to commemorate 20 years of the Single Market, the EU commission published its own estimate that an average of 2% GDP had been added across the member states. To get to this figure, the commission ignored the downturn of 2008-12 and measured from the trough of 1992 to the peak of 2008. This period also coincides with the former Eastern Bloc economies experiencing high growth due to "catch-up" following decades of Communist rule. Furthermore, the UK was already developed and liberalised in 1992 and so would expect to gain less benefit than the average 2% across EU member states. So it is unlikely that the Single Market added 2% to UK GDP.<br />
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As well as leaving the Single Market, we will be leaving the EU's Customs Union, resulting in a new customs border with associated customs clearance and Rules of Origin (RoO). Open Europe has estimated this will add 4% to the transactional cost of trade resulting in a 1% impact to GDP. Customs borders between EU states were removed at the introduction of the Single Market in 1992 (note that this does not apply to EFTA EEA states, who still have a customs border with the EU). So in fact the optimistic estimate of 2% GDP gain from the Single Market since 1992 will include the removal of internal customs borders within the EU. Given that the 2% figure is likely over-estimated for the UK and Open Europe's estimate of 1% GDP for a customs border, the value of staying in the Single Market via EFTA EEA (which has customs borders) is of minimal value - perhaps 0.5%, the figure which Sam Lowe considers to be "in the rounding error".<br />
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The Single Market may not have added much value, but it has certainly curtailed our freedom and sovereignty. Norwegian euro-sceptics complain that the EU increasingly encroaches on their sovereignty via the EEA agreement and want a looser free trade agreement. It seems to me that the Single Market is another example of pro-EU establishment economic propaganda providing cover for political aims. To quote Jacques Delors on the founding of the Single Market: <i>"Europe cannot attain political union ... unless it is in control of its economic destiny. That is why we need an organised economic area." </i><br />
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But another question arises. If the Single Market has added so little value, how is it that leaving it will be such an economic catastrophe ? Single Market advocates say that tariffs are not the issue and a simple free trade agreement is little better than No Deal. It's all about "non-tariff barriers". The argument seems to be that having become enmeshed in the EU's regulatory regime (for negligible economic gain), dis-entangling is so difficult it will create a shock and lasting damage to our economy.<br />
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Single Market advocate <a href="http://peterjnorth.blogspot.co.uk/2017/10/brexit-briefing.html">Pete North has recently published a blog post</a> laying out his thinking on this point as a basis for a parliamentary briefing he has been asked to submit, covering Flexcit memes that I am very familiar with. The Norths deserve credit for leading the debate on non-tariff barriers, which is what initially attracted to me to Flexcit. Unfortunately, they refuse to countenance or engage with any alternative views or perspectives and instead double-down on their apocalyptic view of life outside the Single Market. As I explored further and learnt more, I found myself questioning the impartiality and accuracy of the North's claims. So I want to take the opportunity to respond to the blog post and write up my own perspective.<br />
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While Pete North has written up his thoughts in one (albeit relatively lengthy) post, he can give the impression of detail while glossing over complex points. So I will probably need a lot of blog posts to respond. I hope to examine the paradoxical claim that the Single Market has added little value but is somehow too expensive to leave. In essence, I want to explore the price of freedom from the EU and its regulatory union / Single Market.<br />
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<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com3tag:blogger.com,1999:blog-8156972773801079896.post-1820776209803101112017-10-25T05:04:00.002-07:002017-10-25T05:08:48.072-07:00An Establishment Brexit<br />
Assuming Theresa's May's recent overtures and concessions, combined with further capitulation requested by the EU, eventually results in meaningful discussions on the "framework of the future relationship" - what kind of deal is the UK Government seeking ?<br />
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It has been reported that May will not permit a cabinet discussion on this topic until the New Year, such are her fears over cabinet rifts. Meanwhile there continues to be speculation about whether it will be a Norway, CETA or swiss model or some variant of these. But could it be that the model has already been decided upon, and that actually the Government seeks to base its model on another country - namely Ukraine ?<br />
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Arch-federalist <a href="http://ukandeu.ac.uk/the-case-for-a-new-association-agreement/">Andrew Duff has been pushing the idea of Ukraine's association agreement as a model for Brexit</a> for some time. Note some of the phrases he uses:<br />
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<i>"At the heart of the association agreement is a deep and comprehensive free trade area (DCFTA) .... </i><i>requires ... approximation with the EU acquis ... The UK will only have to keep that technical and regulatory equivalence"</i></blockquote>
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<i>"very important provisions for future political cooperation in the field of justice and home affairs as well as foreign, security and defence policies."</i></blockquote>
Now note language used by May in her <a href="http://uk.reuters.com/article/uk-britain-eu-letter-text/text-of-pm-mays-letter-to-eus-tusk-triggering-brexit-process-idUKKBN1701JH">Article 50 notification letter</a>:<br />
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"<i>deep and special partnership that takes in both economic and security cooperation ....</i><i>cooperation in the fight against crime and terrorism"</i></blockquote>
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"<i>a bold and ambitious Free Trade Agreement between the United Kingdom and the European Union. This should be of greater scope and ambition than any such agreement before .... both sides have regulatory frameworks and standards that already match."</i></blockquote>
Both Duff and May talk of a deep free trade agreement and refer to maintaining regulatory equivalence. <a href="http://trade.ec.europa.eu/doclib/docs/2016/november/tradoc_155103.pdf">Ukraine's DCFTA</a> includes an Agreement on Conformity Assessment and Acceptance of Industrial Products (ACAA) which requires <i>"relevant Ukrainian sectoral and horizontal legislation, institutions and standards have been fully aligned with those of the EU". </i>This is not "mutual recognition" - this is one-way traffic, an export of EU law to Ukraine. Rumours abound of the UK government seeking a <a href="https://www.politico.eu/article/brexiteers-fear-swiss-trap-deal-for-britain/">Swiss option, which Brexiteers see as a trap</a>. A UK Treasury spokesman is reported to have said <i>"a Swiss-style arrangement would give legal sovereignty but in reality would ensure Britain never really diverges from European regulation"</i>. This doesn't sound like taking back control.<br />
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The areas of justice and home affairs were under Theresa May's remit in her time at the Home Office. Britain had secured a full opt-out from around 130 Justice and Home affairs measures in the Lisbon treaty of 2009. In 2013, May opted back in to 35 of these measures, including the infamous European Arrest Warrant. It seems likely May will again choose to opt-in to EU Justice and Home affairs measures - even as we leave the EU.<br />
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But most worrying are the references to security and defence co-operation. Ukraine's agreement states <i>"The Parties shall intensify their dialogue and cooperation and promote gradual convergence in the area of foreign and security policy, including the Common Security and Defence Policy (CSDP)"</i>. <a href="https://twitter.com/VeteransBritain/status/922563696349421569">VeteransForBritain have tweeted</a> that the UK Government has now signed on to six EU Defence Union measures since November 2016, all of which pave the way for a Single European military capability, including a post-Brexit UK.<br />
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The UK Governments stealthy commitment to EU military union throws light upon a statement made by Theresa May in her Article 50 notification letter:<br />
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<i>"We want to play our part in making sure that Europe remains strong and prosperous and able to lead in the world, projecting its values and defending itself from security threats. And we want the United Kingdom to play its full part in realising that vision for our continent"</i></blockquote>
This appears to be an unambiguous statement from a UK prime minister promising that UK defence and security capabilities will be seconded to the political and security goals of Europe - and it is obvious that in this context, Europe means the EU. Even as we are supposed to be leaving the EU, May's government is actively delivering UK defence autonomy into the hands of the EU - even though concern over an EU military union was a major factor in the Leave Referendum victory.<br />
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The leak of a <a href="https://www.bloomberg.com/news/articles/2017-10-16/germany-drafts-outline-of-eu-u-k-ties-post-brexit-paper-shows">draft paper prepared by the Foreign Ministry in Berlin</a> seems to confirm the nature of this proposed relationship:<br />
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<i>"a broad partnership that includes “at a minimum” the fields of foreign and security policy; fighting terrorism; cooperation on criminal justice; agriculture and fisheries; energy; transport, and especially air transport; research and digital issues."</i></blockquote>
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<i>"the degree of access to the EU’s single market conditional on the extent to which the U.K. is prepared to adhere to regulatory norms. Even where the U.K. agrees to common rules, there can be no “cherry-picking” that gives the U.K. a competitive advantage"</i></blockquote>
<a href="https://www.theparliamentmagazine.eu/articles/news/andrew-duff-association-agreement-best-brexit-option-uk">Duff has described</a> an association agreement like Ukraine's as the best the UK can hope for. <a href="https://www.euractiv.com/section/uk-europe/opinion/could-uk-choose-a-ukrainian-model-after-brexit/">Duff has also suggested</a> that <i>"the difficult part of an association agreement will be trade policy, especially in services"</i> and <i>"any half-decent new relationship with the EU will come at a price to HM Treasury that might not be much lower than the UK’s existing net contribution to the EU budget". </i>He's hardly selling it to us is he?<br />
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Combined with the EU's demands regarding the "divorce bill", citizen rights & ECJ oversight, customs border in the Irish Sea, "<i>safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices" - </i>this all adds up to very bad deal, as discussed in <a href="https://my10minuteblog.blogspot.co.uk/2017/09/bluffing-with-empty-hand.html">my previous post on this blog</a>.<br />
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So why are we on this trajectory ? It may be tempting to think that this is due to the General Election result which weakened Theresa May. But May's Government has been signing up to the EU Defence Union since November of 2016. The "deep and special partnership" rhetoric pre-dates the disastrous General Election.<br />
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I suspect the problem is that a Remain-supporting Prime Minister who does not really believe in Brexit, along with a Remain-dominated Cabinet and Parliament have been charged with delivering Brexit. The vacuum of ideas left by May's vision-less leadership is filled by a group-think civil service geared towards the Brussels status quo - they are more than happy to draw on whatever Brussels proposes. The end result is an "establishment Brexit" - Brexit in name only which leaves us even more enmeshed in "the EU project", with less freedom of manouevre and no influence.<br />
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This is of course political ineptitude of the highest order. The Tories got to their highest vote share in a generation on the back of being trusted with Brexit. They will never be forgiven by Leave voters for the betrayal of an "establishment" Brexit. Nor will they pick up support from Remain voters who will ask (rightly) why did we reject membership with some influence if we are to still so tightly bound to the EU ?<br />
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The Government and the country are in need of bold leadership to make a success of Brexit. Instead Brexit is entrusted to the Remain establishment who will deliver a dire "establishment Brexit". Change is needed - and quickly.<br />
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<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-46276600517740739862017-09-24T19:15:00.000-07:002017-09-24T19:18:19.429-07:00Bluffing with an empty handTheresa 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".<br />
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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.<br />
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1) The full 100bn exit bill will be extracted, with no offset from any EU assets.<br />
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2) EU expats in the UK will be granted full EU freedom of movement and citizen rights, with ECJ jurisdiction and enforcement.<br />
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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.<br />
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4) The <a href="http://www.consilium.europa.eu/en/press/press-releases/2017/04/29-euco-brexit-guidelines/">EU's negotiating objectives</a> insists upon <i>"safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices". </i>The EU's current grip on social, environmental and regulatory law will not be relaxed, and control will be extended further to cover taxation.<br />
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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.<br />
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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.<br />
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7) Somewhat out of the public eye, the <a href="https://twitter.com/VeteransBritain/status/910819146438504448">UK Government has signed up to 5 EU Defence Union initiatives since November</a> (see Veterans for Britain <a href="https://twitter.com/VeteransBritain">twitter feed</a> and <a href="http://veteransforbritain.uk/">web site</a>). 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.<br />
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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.<br />
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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.<br />
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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.<br />
<br />
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 <i>"effectively protect its autonomy and its legal order, including the role of the Court of Justice of the European Union." </i>At the end of August, Michel Barnier stated UK requests were "simply impossible" as the EU must protect the integrity of the single market. <a href="http://europa.eu/rapid/press-release_SPEECH-17-3404_en.htm#_ftn1">Barnier again emphasised this on the eve of May's Florence speech </a><br />
<blockquote class="tr_bq">
<i>"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."</i></blockquote>
<div>
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.</div>
<div>
<br /></div>
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.<br />
<br />
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.<br />
<br />
A <a href="http://www.bbc.co.uk/news/uk-41271028">report by the BBC's Christopher Cook</a> concluded <i>"government is not behaving like it is really preparing for No Deal - and the EU27 can surely see it.". </i><a href="https://twitter.com/odysseanproject/status/909761727272759301">Dominic Cummings has tweeted</a> how failure to prepare for No Deal is a historic unforgivable blunder - it is hard to disagree. <a href="https://www.conservativehome.com/platform/2017/09/james-arnell-the-government-must-not-dither-away-our-brexit-negotiating-position.html">James Arnell, a partner at Charterhouse, in an article for Conservative Home</a>, laments the lack of progress to date and calls on Brexiteer MPs to provide an ultimatum to Mrs May and her government to <i>"demand a proper Brexit plan which is deliverable with or without the cooperation of Brussels"</i>.<br />
<br />
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 <a href="http://www.telegraph.co.uk/news/2017/09/20/need-completely-new-brexit-hit-squad-fast-deliver-visionary/">revitalise the government machinery for delivering Brexit</a>. 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.<br />
<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-52961396678946475562017-09-16T20:31:00.002-07:002017-09-16T20:31:58.056-07:00Flexcit reality checkSimon Nixon's recent Times article <a href="https://www.thetimes.co.uk/article/8c86a21c-9339-11e7-a2ce-ce94682a575d" id="id_e3d1_7c14_c230_f9da" target="_self">"Norway option is not the long term answer to the problems posed by Brexit"</a>, 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.<br />
<br />
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.<br />
<br />
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><i><u><b>Freedom of Movement</b></u></i></span></div>
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<br />
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.<br />
<br />
Article 112 of the EEA agreement states that where<i> "serious economic, societal or environmental issues arise", </i>safeguard measures can be used, limited to "<i>what is strictly necessary in order to remedy the situation". </i>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.<br />
<br />
In 1995, prior to Liechtenstein's EEA accession, the <a href="http://www.efta.int/sites/default/files/documents/legal-texts/eea/other-legal-documents/adopted-decisions-of-the-EEA-council/eea-council-no1-95-1995-03-10-liechtenstein.pdf">EEA Council recognised</a> that Liechtenstein was a <i>"small inhabitable area of rural character with an unusually high percentage of non-national residents and employees" </i>and effectively pre-authorised the use of safeguard measures assuming no other solution was found. Liechtenstein did not act unilaterally.<br />
<br />
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 <i>"rebalancing measures"</i> 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 (<a href="http://eulawanalysis.blogspot.co.uk/2016/11/eu-free-movement-law-in-10-questions.html">as suggested on Steven Peers' EU Law Analysis blog</a>).</div>
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<br /></div>
<i><u><b>Still Pay, No Say?</b></u></i><br />
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<br /></div>
<div>
Inevitably there are complaints that the article simply repeats the "still pay, no say" mantra from the Remain campaign. Nixon states that EEA members <i>"contribute to the EU budget"</i>. 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.</div>
<div>
<br /></div>
<div>
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. </div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span></div>
<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">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.</span></div>
<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span></div>
<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">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.</span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><i><u><b>EEA democratic reform ?</b></u></i></span></div>
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<br /></div>
<div>
<span style="-webkit-text-size-adjust: auto;">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. </span></div>
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<span style="-webkit-text-size-adjust: auto;"><br /></span></div>
<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">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. </span></div>
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<br /></div>
<div>
<span style="-webkit-text-size-adjust: auto;">Juncker's recent "state of the Union" speech stated<i> "trade is about exporting our standards, be they social or environmental standards, data protection or food safety"</i>. 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? </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">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.</span></div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span></div>
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<div>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">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 <i>"parking place for those states not yet ready for full integration"</i>.</span><br />
<br /></div>
</div>
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<i><u><b>EEA is not a given for Britain</b></u></i></div>
</div>
<div>
<br />
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.<br />
<br />
<ul>
<li>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.</li>
<li>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).</li>
<li>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.</li>
<li>All of this means that a transition arrangement is needed just to achieve the EFTA EEA option.</li>
</ul>
<i><u><b>Conclusion</b></u></i><br />
<br />
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 <a href="https://my10minuteblog.blogspot.co.uk/2017/08/the-dishonest-case-for-eea.html">earlier post</a> and <a href="http://www.lawyersforbritain.org/eu-deal-sm-without-agreement.shtml">Lawyers for Britain have also written a good critique</a>). They will insist that the Liechtenstein option must be applicable for Britain (despite plenty of critiques, including a <a href="http://www.civitas.org.uk/2016/10/11/the-liechtenstein-solution-is-not-a-model-that-the-uk-could-use-to-permanently-control-migration/">very good critique from Civitas</a>). 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).<br />
<br />
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 ?<br />
<br />
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.<br />
<br />
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.</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com2tag:blogger.com,1999:blog-8156972773801079896.post-28373524613289363872017-09-01T16:01:00.001-07:002017-09-02T04:07:08.362-07:00Barnier on Mutual RecognitionThe <a href="http://europa.eu/rapid/press-release_SPEECH-17-3043_en.htm">press conference speech by Michel Barnier following the third round of Article 50 negotiations</a> sparked plenty of confusion and debate, in particular the following comments:<br />
<blockquote class="tr_bq">
<i>".. 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.</i></blockquote>
<blockquote class="tr_bq">
<i>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. </i><i>This is simply impossible. You cannot be outside the Single Market and shape its legal order."</i></blockquote>
Further to that, Barnier said some of the recent British proposals showed <i>“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”</i>.<br />
<br />
What does he mean ? Several alternative interpretations have been discussed:<br />
<br />
1) The initial response was that Barnier was ruling out <i><u>mutual recognition</u></i>, despite the fact that the <a href="https://ec.europa.eu/growth/single-market/goods/international-aspects/mutual-recognition-agreements_nl">EU has mutual recognition agreements with numerous third countries</a>. 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.<br />
<br />
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.<br />
<br />
2) It was then suggested <i><u>"automatic mutual recognition of *divergent* regulations & standards"</u></i> 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.<br />
<br />
The most obvious case is <a href="https://my10minuteblog.blogspot.co.uk/2017/08/will-we-starve-after-brexit.html">agriculture / SPS regulations</a>. 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.<br />
<br />
In a recent paper on <a href="https://my10minuteblog.blogspot.co.uk/2017/08/co-operation-versus-harmonisation.html">Data Protection</a>, 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.<br />
<br />
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.<br />
<br />
3) A clue to another possible explanation is in Barnier's reference to "<i><u>recent UK papers / proposals"</u></i>. <a href="about:invalid#zClosurez">"Continuity in the availability of goods for the EU and the UK"</a> was published by the UK Government on 21st August, effectively responding to the EU's paper "<a href="https://ec.europa.eu/commission/sites/beta-political/files/essential_principles_goods_0.pdf">Goods placed on the Market under Union law before the withdrawal date</a>" published 28th June 2017.<br />
<br />
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).<br />
<br />
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) .<a href="http://www.independent.co.uk/news/uk/politics/uk-brexit-british-goods-eu-sold-exports-no-extra-costs-customs-union-david-davis-a7904841.html"> Existing Car type approvals may be at risk</a>, 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.<br />
<br />
Here I think we see the heart of the problem. Although Article 50 calls for the withdrawal agreement to be concluded <i>"taking account of the framework for its future relationship with the Union"</i>, 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.<br />
<br />
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 <a href="http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/~/media/55F00628A9F94827B58ECA90C0F84F7F.ashx">WCO SAFE Framework 2012</a> and section 5.5 on page 54 of <a href="http://www.un.org/en/sc/ctc/specialmeetings/2007-nairobi/docs/SAFE.pdf">WCO SAFE Framework 2007</a>).<br />
<br />
<i><u>Conclusion</u></i><br />
<br />
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.<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">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. <span style="color: #202020;"><a href="https://twitter.com/MacaesBruno/status/903222175808749568">Portugal's former Europe Minister Bruno Macaes tweeted</a> </span><span style="background-color: white; color: #202020;">that Barniers' comments contradict </span><span style="background-color: white; color: #202020;">the EU's position on trade:</span></span><br />
<ul>
<li>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". </li>
<li>In<span style="color: #202020;"> negotiations with the US for TTIP the goal was "frictionless" trade, which Barnier deems </span><span style="color: #202020;">impossible for the UK.</span></li>
<li>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.</li>
</ul>
<br />
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 <a href="https://capx.co/the-eu-will-soften-its-stance-on-brexit-heres-why/">the EU will have to start talking about trade soon</a> - I hope he is right.<br />
<br />
<br />Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0tag:blogger.com,1999:blog-8156972773801079896.post-44317555095586981002017-08-30T07:01:00.003-07:002017-08-30T07:15:14.966-07:00There is no Mandate for EFTA EEAAs I wrote in a <a href="https://my10minuteblog.blogspot.co.uk/2017/08/the-dishonest-case-for-eea.html">previous blog</a>, "You could be forgiven for thinking the question over the Single Market had been settled." But unfortunately, we now see claims that the Referendum campaign did not provide a mandate to leave the Single Market being revived (again).<br />
<br />
1) Pretending that the Referendum campaign did not discuss leaving the Single Market has been categorically debunked, not least in <a href="https://www.youtube.com/watch?v=_9dKcjfeVTs">Andrew Neil's demolition of Open Britain's James McGrory</a>. It is insulting the public's intelligence to suggest that this was not understood. Since the Referendum, we have had the Lancaster House speech, the Conservative and DUP General Election manifestos, the Queens speech based on those manifesto commitments and a vote against Chukka Umunna's Single Market amendment by 322 to 101 - all committed to leaving the Single Market.<br />
<br />
2) Even worse, we then have the argument that voters don't have enough understanding of the EU or Single Market to understand the effects of leaving. This of course is exactly the line of argument used by Remain refuseniks who wish to reject or overturn the Referendum. The same argument used by MacMillan and Heath to get us into the EEC in the first place while concealing the loss of sovereignty involved. The same argument used for decades afterwards as EU treaty after EU treaty was signed without consulting the British public. It amounts to the metropolitan elite and political class saying "its all too complex for you, we know best".<br />
<br />
3) The same people who propagate this view of voters are remarkably quick to seize on polling that suggests public support for the single market (the same single market voters apparently do not understand). A Comres poll for the BBC in July 2016 is quoted as showing 66% think retaining the Single Market should be a priority for the Government. Except upon examination, this is actually 66% support for <i>"maintaining </i><b style="font-style: italic;">access </b><i>to the single market so Britain can have </i><b style="font-style: italic;">free trade </b><i>with the EU". </i>Free Trade access to the Single Market is completely different from being inside the Single Market with all its associated restrictions - as voters and pollsters well know.<br />
<br />
A more accurate view of public sentiment is provided by the YouGov Poll of August 2016, which compared the Norway EFTA EEA model with a Canadian Free Trade Agreement (FTA) model. The majority view was that the Norway model was not a good deal and was not seen as respecting the result of the Referendum.<br />
<br />
Rather like those <a href="https://my10minuteblog.blogspot.co.uk/2017/08/the-dishonest-case-for-eea.html">arguing over Article 127 of the EEA Agreement</a>, EFTA EEA supporters are making a disingenuous case on "mandate" rather than making a positive case for the EFTA EEA option, precisely because they don't believe people will freely choose EFTA EEA over an FTA. In fact they tend to argue against other options and then defend the EEA option as being "not as bad as you think". Here's a quick preview of the EFTA EEA arguments I've seen:<br />
<br />
1) The original case made for EFTA EEA was the 2-year Article 50 deadline - an "off-the-shelf" interim or transitional arrangement was needed to avoid a disastrous cliff-edge scenario and buy time to negotiate a full settlement - a case I argued during the Referendum. But even EFTA EEA supporters now admit that <a href="https://my10minuteblog.blogspot.co.uk/2017/07/efta-eea-is-destination-not-transition.html">EFTA EEA is a destination, not a transition</a>.<br />
<br />
2) The sacrifice of sovereignty is justified by reduced marginal cost of trading with the EU. But <a href="https://my10minuteblog.blogspot.co.uk/2017/07/the-cost-of-brexit.html">what is this cost of leaving the Single Market</a> and is it outweighed by the impact to domestic economy, trade with rest of the world - never mind the sovereignty sacrifice? If marginal costs to trade with the EU is the over-riding factor, then why not have a Customs Union? Why not stay in the EU? Why not join the Euro (which would eliminate currency exchange costs)? Why not join Schengen (which eliminates the cost of passport checks at the border)?<br />
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3) Claiming the EEA agreement is really just a sophisticated FTA based on mutuality and co-operation. In reality, the EEA is founded upon the principle of homogeneity and is designed to export EU single market law to the EFTA EEA states - primarily as a prelude to full EU membership. Wanting the (supposed) advantages of harmonisation while cherry-picking elements to disagree with is very much "cake and eating it" territory - it won't wash with the EU.<br />
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4) Claiming EEA safeguard measures can provide us with the same sovereignty over immigration control as a third country. The best rebuttal of this I have seen is <a href="http://www.civitas.org.uk/2016/10/11/the-liechtenstein-solution-is-not-a-model-that-the-uk-could-use-to-permanently-control-migration/">an article by Christian Stensrund for Civitas</a> .The EU have been crystal clear regarding the indivisibility of the four freedoms. If the EU wanted to soften this line to accommodate Britain, they would have done so during the negotiations with David Cameron. Even if the claim were true, by itself this does not make EFTA EEA superior to a third country option.<br />
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5) EFTA EEA allows Britain to pursue its own trade policy. This is true for tariffs, but lack of regulatory freedom would prevent Britain from negotiating on regulations and non-tariff barriers with third countries - which is where the value of modern free trade agreements lies. <a href="http://www.efta.int/sites/default/files/documents/legal-texts/eea/the-eea-agreement/Protocols%20to%20the%20Agreement/protocol12.pdf">EEA Protocol 12</a> exemplifies this - the EU has sole initiative to negotiate Mutual Recognition Agreements (MRAs) - EFTA EEA states can only make parallel agreements harmonised with the EU MRAs.<br />
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I could (and probably will in subsequent posts) go into much more detail on why the case for EFTA EEA is flawed and disingenuous. But I will end this post by emphasising that far from there being no mandate to leave the single market, there is in fact no mandate <i><u>for</u></i> the single market. It is for those proposing EFTA EEA to make a compelling case as to the advantages of a permanent EFTA EEA settlement - something they have singularly failed to do so far.<br />
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Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com2tag:blogger.com,1999:blog-8156972773801079896.post-57208314060155955102017-08-26T15:55:00.001-07:002017-08-27T04:18:59.616-07:00The Myth of Global Regulations - SPS MeasuresIn a <a href="https://my10minuteblog.blogspot.co.uk/2017/08/the-myth-of-global-regulations.html">previous post</a>, I looked at the claim made by supporters of the EFTA EEA option that the EU's technical regulations were simply a "rubber stamp" of global regulations and concluded:<br />
<ul>
<li>There are no "global" regulations, just international standards which are voluntary and only have legal force when implemented in binding regulations in national (or EU) legislation - giving scope for "gold-plating" and regulatory barriers to trade. </li>
<li>The EU's regulations are not fully harmonised with international standards bodies recognised by the WTO. In particular, only 24% of European CEN standards cited in EU law are identical to ISO standards.</li>
<li>The EU adopts a protectionist regulatory stance: refusing to recognise international standards that provide equivalent or higher safety levels; insisting on withdrawal of existing regulations and replacement with European standards in trade relations with third countries - effectively exporting the EU acquis and shutting out other international trade.</li>
</ul>
A similar story is seen with respect to Sanitary & Phyto-Sanitary (SPS) regulations - i.e. regulations covering animal and plant health. <a href="https://www.wto.org/english/docs_e/legal_e/15sps_01_e.htm">The WTO SPS agreement</a> encourages the use of international SPS standards (Article 3.1), in a similar manner to WTO TBT agreement Article 2.4 and international technical standards. The WTO recognises three international SPS standards organisations:<br />
<ul>
<li><a href="http://www.fao.org/fao-who-codexalimentarius/en/">Codex Alimentarius</a> established by <a href="http://www.fao.org/home/en/">FAO (Food and Agriculture Organisation of the UNO)</a> and the World Health Organization in 1963 to develop harmonised international food standards. </li>
<li><a href="http://www.oie.int/about-us/">OIE (Office International des Epizooties)</a> intergovernmental organisation responsible for improving animal health worldwide, established by an international agreement in 1924</li>
<li><a href="https://www.ippc.int/en/">IPPC (International Plant Protection Convention)</a> an international agreement on plant health.</li>
</ul>
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Codex is also party to an agreement with UNECE (<a href="http://www.unece.org/fileadmin/DAM/trade/agr/AboutUs/GenevaUnderstanding_E.pdf">the "Geneva Understanding"</a>) to avoid duplication and adopt each others standards where they overlap. Between them, Codex and UNECE provide a large proportion of international food safety standards.<br />
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SPS regulations are cited as the best example of how EU regulations are essentially "global". There are no hard and fast figures available, but it does seem likely that the great majority of the EU's SPS regulations are based on international standards (primarily from Codex and UNECE). Tabloid claims regarding barmy Brussels laws on curvy cucumbers and bent bananas turn out to be international standards with a sensible, trade facilitating purpose behind them. <br />
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There are notable exceptions to the EU's acceptance of international standards though. The EU's resistance to Genetically Modifed Organisms (GMO) has held back scientific and agricultural development in Europe and resulted in WTO rulings against the EU from cases brought by US, Canada, Australia, New Zealand. Argentina, Brazil, India and Mexico.<br />
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But even though the majority of EU SPS regulations are based on international standards, there is still significant scope for barriers under the WTO SPS Agreement. In particular Article 3.3 allows circumstances where members can introduce SPS measures resulting in a higher level of protection than international standards.<br />
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<a href="https://www.linkedin.com/pulse/tariffs-may-easy-part-brexit-uk-farming-derrick-wilkinson">As Derrick Wilknson explains in his blog</a>, there is a wide range of plant protection products (PPPs), veterinary pharmaceuticals (VPs) and biotechnologies, that are severely restricted or banned in the EU.<i> </i>Although international standards have been agreed on maximum allowable residue limits for the PPPs and VPs on food, the actual limits enforced vary significantly from jurisdiction to jurisdiction.<br />
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The recent publicity over "chlorinated chicken" is also informative. The USA puts chicken carcasses through a disinfectant chlorine wash to prevent salmonella. This is a perfectly safe procedure and there is no Codex, UNECE or other international standard prohibiting this. In fact prepared salads sold in the EU are often subjected to a chlorine wash. The<a href="https://fullfact.org/europe/does-eu-say-its-safe-eat-chicken-rinsed-chlorine/"> EU does not regard the chicken chlorine-wash as unsafe</a> - nevertheless imports of US chicken to the EU are blocked. <br />
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The EU's regulatory approach is based on the "precautionary principle" and a "farm-to-fork" approach to secure food safety throughout the supply chain - rejecting the US use of disinfectants. It has been claimed that the EU's approach is a superior form of food safety control, although recent salmonella outbreaks across the EU have rather undermined that claim. What is clear that the EU's approach creates a major non-tariff barrier to trade in agriculture with non-EU nations.<br />
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Packaging regulations also provide a major non-tariff barrier for agricultural exports. Combined with onerous rules of origin, they restrict African countries exporting to the EU despite benefiting from a zero-tariff rate for Least Developed Countries (LDC's). <a href="http://www.producer.com/2017/03/canadian-export-officials-miffed-over-ceta-import-regulations/">Canadian exporters complain that meat exports to the EU require the EU's own health mark</a> on a tamper proof belt applied in the processing plant.<br />
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The fact that the EU's SPS regulations are based primarily on international standards from Codex and UNECE does not prevent regulatory barriers to trade. Choosing the EFTA EEA option means permanently adopting the EU's particular SPS regulations, with all the barriers and protectionism that brings. The claim that EU SPS regulations are simply a "rubber stamp" of global SPS standards is a myth.</div>
Paul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.com0