Tuesday, 25 July 2017

Brexit: a time for pragmatism, EFTA and the EEA

Quite unlike Her Majesty's opposition, I have made up my mind on the terms of Britain's European Union departure. I believe the smoothest possible exit can only be guaranteed by following the path laid out by the Leave Alliance last summer. The UK should, on a transitional basis, rejoin the European Free Trade Association (EFTA); an organisation it helped to form back in January 1960, as outlined in the only existing comprehensive Brexit plan. The document, entitled Flexcit, can be found here

This is a view I have arrived at fairly slowly. My ties to Vote Leave throughout 2016 made conversion pretty much impossible. I expanded upon this at this blog a couple of weeks ago, for those who did not manage to read. But the need for a proper, concise exit plan has only recently become plainly obvious to me. The good thing about re-accession to EFTA is that it is a pre-made package that requires minimal fuss, allows us to avoid economic meltdown and gives us a substantially better deal than we have today. The only real stumbling block is trying to convince hard Brexiteers (and having been one, I know how insistent these people are) that EFTA membership isn't retained EU membership through the backdoor. 




For the purpose of addressing the diagram, the European Economic Area (EEA) is the single market; itself a collaboration between the three EFTA states and the European Union countries. Switzerland put membership of the single market to its people in a referendum in December 1992 and accession was rejected, albeit by a margin of just 0.6%. They have, therefore, separate bilateral arrangements with the single market. Even I, a relative newcomer to the Flexcit bandwagon, am already growing tired with media outlets and so-called political experts confusing the EU with the single market. They are not the same thing. The four freedoms (goods, services, people and capital) enshrined into UK law befall unto us by virtue of our membership of the single market, and not by virtue of our membership of the European Union. 

This morning I re-watched Jeremy Corbyn's hapless performance on Sunday's Andrew Marr show, wincing in discomfort over his dishonest claims about what leaving the EU meant. Just minutes into his interview, he claimed that the UK could not stay in the single market if it was leaving the European Union. This is a worryingly large deceit. With false promises like that, it is no wonder that thousands of young people lined up behind him in droves at this year's General Election. He can fool them, perhaps, but he can't fool those of us who pay attention. And Liam Fox, the Secretary of State for International Trade, wasn't much better either. Full of platitudes and soundbites and totally devoid of answers to even simple questions. There is something to be said here for how harshly Brexit is exposing a political class whose obligations have largely been devolved and passed upwards to the European Commission for the last 44 years. They remind me of scurrying ants fleeing from a destroyed nest. 

Incompetence of this kind to me demonstrates that most Brexiteers thought that developing an exit plan wasn't a necessity. Last year's referendum campaign, thanks largely to my former colleague Dominic Cummings, did not present an actual plan for leaving the European Union. And there is a good reason for this. There exists no plan for leaving the European single market. Had the Leave campaign recommended rejoining EFTA to the electorate, there is no way we would have won the poll. EFTA membership, thanks to its participation in the single market, means we continue to accept the free movement of people to the United Kingdom, and since immigration was the largest single issue arousing most Leave voters, it would have been politically infeasible to work with such a plan. 

But, the referendum has gone, and Whitehall has a mandate to negotiate Britain's exit from the EU. The question, therefore, is how best to approach it. I now advocate rejoining EFTA for a multitude of reasons. The first is that whilst the European Union is a supranational organisation - where sovereignty is sucked upwards and outwards to Brussels - EFTA is an intergovernmental arrangement that is democratically much more desirable. Within EFTA, reclamations of sovereignty are once again possible. EFTA states are not obliged to take part in the Common Fisheries Policy (the very reason Norway opted to stay out of the EU in the first place, and unsurprisingly so), the Common Agricultural Policy, Defence and Foreign Policies, or indeed the Customs Union. 

EFTA states can, unlike EU members, negotiate their own bilateral trade agreements, are exempt from the EU's VAT Policy, are not subordinate to the European Court of Justice and, crucially, do not subscribe to the ever-closer-union outlined in 1957's Treaty of Rome and can escape approximately 80% of EU law. The remaining 20% of EU law relates to the single market, but many such rules did not originate at European level and are adopted from global bodies like the World Trade Organisation. I think there are clearly very notable gains to be made outside of the EU and inside the single market. I don't necessarily propose that EFTA membership should be the UK's permanent solution, but the foresight required to develop a plan beyond this one is way above my head. I also think it is important to address some of the worries that other Leave voters have with rejoining EFTA as far as immigration is concerned. 

The first issue raised is how we can possibly accept continued freedom of movement, given how important an issue it was during campaign season last year. Article 112 of the 1994 EEA Agreement (which established the single market's conjunction with EFTA) says:

"1. If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113. 

2. Such safeguard measures shall be restricted with regard to their scope and duration to what is strictly necessary in order to remedy the situation. Priority shall be given to such measures as will least disturb the functioning of this Agreement. 

3. The safeguard measures shall apply with regard to all Contracting Parties."

By right of our joining EFTA, we have controls against excess of these freedoms that we do not have in the EU. I oppose mass immigration for reasons to do with social fabric and integration, but I recognise the need to prioritise single market access and thus the economy during such a sensitive negotiating period. I just think we have to be a little more patient on immigration. Since the referendum result, net migration has fallen, likely due to the political instability presented by our two-year negotiation period and governance by plan-less politicians. I don't suppose this trend will be reversed any time soon. 

Leaving the single market is a profound economic risk primarily because the European market treats what it calls third-party countries on much less favourable terms. This isn't a point about trade. It's a point about common sense. If you build something worth having, you will want to set an example and won't accept letting everyone in. That's why, during the referendum, I never argued that the European Union needed Britain more than we needed them. For my allies to have done so was paralysing stupidity. And that's why now, as we move towards the point of no return, I'm arguing for a pragmatic Brexit that sees the UK remain an influential cog in the single market wheel, and in doing so make EFTA a larger and more powerful trading bloc. And the best part about all of this is that the plan is already in place. 

20 comments:

  1. Some may ask; does “unilaterally take” trump “appropriate” …“scope” … and “duration”. IMO it must.


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  2. 1. Don't you feel any moral sense of responsibility for confessing presenting a Leave workable plan would have meant losing?

    2. Let's follow the fantasy and assume Brexiteers agree to pay big sums, bow to ECJ, lose voting rights in regs, and accept FoM. How does that work being outside the CU (broad sense) for movement of goods? How do I balance inventory across Europe when I have border checks on every movement in and out? How do I ship B2C cross country from NL to UK consumer when inventory is short in UK? Even magically removing tariffs in a CETA style deal, do you have any idea the paperwork, coding and country of origin requirements today to move products across borders to NO,CH & TR(kind of in CU) ?

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    1. 1. No. I wasn't in charge of directing the Leave campaign. That was Dominic Cummings. He expressed his reasoning for not presenting a plan on his own blog.

      2. EFTA states aren't apart of the Customs Union. This is what allows them to negotiate their own, individual, bilateral FTAs.

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    2. 1. I was not suggesting you were the mastermind.
      I read Cumming's blog and was amazed at his weak conviction in Brexit benefits, and also his lack of understanding in the mechanics of the EU Single Market.
      As an intelligent person how could you take part in a campaign which you knew was essentially a mistruth? You helped sell "we can have free trade without ANY obligations".

      2. I understand you want to avoid some of the hardship of cutting ties to our closet richest markets, and so you suggest staying in the EU Single Market (if you mean EEA & EFTA). However my questions were for those of us exporting & importing goods - do you fully understand the implications this model(outside CU) & of having hard borders re-introduced?

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    3. 1. I was a little naive in my Vote Leave days and went along with the plan because I didn't at the time know any better. I have expanded on this at this blog.

      2. The single market is not the EU single market. And why would leaving the EU (and CU) and joining EFTA equate to hard borders? EFTA members are mostly in the EEA.

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    4. I can see the attraction of EFTA & EEA because it simplifies a number of partnerships, agrees standards, and from my perspective EEA would give me flexibility in continuing to invoice (under triangulation) from UK across Europe, and guarantee in-market obstacles are not placed on products.
      I can also see why you would want to be outside the EU Customs Union. All that US chlorinated chicken & cheap Chinese state-subsidised steel or whatever. Outside the EU CU you would be free to cut new bilateral FTAs so it defeats the purpose of Brexit if you remain within the EU CU in the Brexit faith. However by being outside the EU CU you would be adding a HARD border for goods around the UK. It would be the same as EU/NO is today or EU/CH (in effect in SM for goods). Dan Hannan and others say it takes seconds to clear customs, but time is not the issue (even though it sometimes takes much longer). Currently I can ship UK products from Portugal to Finland without a border check. Shipping to CH for example means I need to prepare all the paperwork, reconcile duty, make sure products are coded with Country of Origin. Getting products returned is often not worth the effort. Customs clearance works best and is cheapest when I batch so I stage products to reduce fees. Honestly it doesn't matter for NO & CH - they are small markets (5m & 8m) with an acceptance that prices are high. The UK is a very different and larger market and a border where every item (including my components) in and out of the EU requires clearing by customs is a nightmare.

      Somehow people believe this is going to be offset by amazing global FTAs. Deals like CETA (EU/Canada) do not remove borders - they just remove tariffs for the most part and then only on Canadian/EU sourced products. Once again every item must be coded from Canada and potentially checked to see it is liable or not for duty and conforms to standards. These deals don't really help. I already can export globally, and tariffs are not the issue in highly protected markets like Brazil (OK tariffs also there), India, Japan, China, and the USA. Here the protectionist issues are not around borders but in-market laws, taxes, product regulations & state intervention.

      All of this is academic because the religion of Brexit will never allow an EEA deal with FoM & EU payments.

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  3. We should be subject to no law that was not made with our representation.

    And we should take an evidence-based view of the Single Market. The Single Market has had very little effect on economic growth, and yet it has become the weird subject of a fetish. Eliminating barriers to trade is not a good thing in itself, but it is treated as such by worrisome zealots. With zero tariffs and some regulatory bridging on some areas it's unlikely that there will be much damage at all to the British economy, and we'll gain far more sovereignty.

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    1. I agree with you in principle. We shouldn't be subject to law without representation. So let me hit you with a couple of points. Firstly, European institutions exist and there is no way around that. We have to alter our relationships with them pragmatically, and thus in a way that means we acknowledge that they aren't going anywhere.

      As for the single market not being economically beneficial, I disagree. Take a look at this, for instance: http://www.eureferendum.com/blogview.aspx?blogno=86387

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  4. Oh dear. I suppose that you falling for the Flexcit nonsense isn't too surprising when you then admit "I was a little naive in my Vote Leave days"? Surely if you're going to write a blog you should be rather better informed?

    Vote Leave was disastrous - we won despite that organisation you worked for - and now you're following Dr North? I would strongly recommend that you read more widely and then think for yourself.

    This EEA/EFTA rubbish is gaining traction amongst three main types: those who know very little, those who are really Remainers but who are masquerading as 'respecting the vote, etc', and those who like to pose as academics and who have little knowledge of what happens in practice.

    Sorry to be blunt.

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    1. I said I was naive, this is not the case today. The whole point of blogging is to develop ones views, something columnnists aren't particularly good at because of editorial scopes/guidelines. I write about things I know about and can influence, not things I don't have a clue about.

      As for Vote Leave, we did win the referendum, so the main part of our job was complete. I am not 'following' Dr North. We speak a bit and I have based my ideas, which aren't totally developed, (unlike I suspect yours) on Flexcit. I am not rigidly constrained to agreeing with select people all the time.

      The EEA/EFTA option is pragmatic, not rubbish. As my knowledge has expanded, I have become more (not less) likely to endorse it. You also don't propose any real technical problems with the EFTA alternative. You just attack it without substantiating anything.

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  5. Oliver,

    I'll prefix this with a clear statement that I'm not knee-jerk condemning the EFTA position; in many ways, joining in to the organisation would seem to make perfect sense a next step.

    That said, I think there are some points to consider in all this.

    Since 1994, the EEA agreement has forced EU market obligations on members, including the four freedoms outlined above. Whereas you attribute them to the Single Market, it's quite clear that these are not co-authored - rather that they're an EU imposition. I'm not aware of any EU members who are exempt from this arrangement. The UK are subject to the four freedoms because of our EU membership.

    In fact, we get to the crux of the matter quite quickly here. The EEA is a front garden for EU membership. You may not be subject to the full acquis but you're still subject to over a quarter of EU laws and 70% of EU directives. If you're subject to EU law, surely you're subject to the ECJ, hence it is not disingenuous for people to say that remaining in the Single Market leaves us within the EU. In name, we may not remain a member - but we've not gained escape velocity. EFTA/EEA members may technically fall under the EFTA court but ECJ rulings apply via that court.

    Will we be able to invoke Article 112 to manage FoM? No. Let's get real here. Merkel has already been clear on several occasions that we will not be allowed to cherry pick. We certainly won't be allowed to keep rolling Art 112 over to the extent where it resembles proper control of migration. The EU simply will not allow us to flount one of the four freedoms in such a manner.

    If this is not enough, the distrust of the EFTA/EEA arrangement is not simply that the tentacles of the EU still reach in to our lives (although why the EU should be granted the right to extend social policy amongst other things in to what is widely and wrongly perceived as a trade enabler, I do not know); it's simply the fact that the EFTA/EEA position, previously derided by all on the Remain side (including Cameron from the outset) is now the last best hope for them and suddenly the 'sensible' choice. Why? Because it's the easiest place from which they can drag us back in at the earliest opportunity. If we move in to the EEA position, expect political mistrust to be at an all time high. The country is having a bad enough time trying to heal after the referendum as it is.

    (1 of 2)

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    1. The EEA is structured in what is called a two-pillar system. Follow this link for more information: http://www.efta.int/eea/eea-institutions re your assumption that EFTA states would be subject to the jurisdiction of the ECJ. There is more autonomy for EFTA states than you might think in terms of legal adjudication, and this is all set out in the EEA Agreement. Carl Baudenbacher concluded in 'The relationship between the EFTA Court and the Court of Justice of the European Union' that: "The relationship between the EFTA Court and the ECJ has, in the first two decades of the former’s existence, been characterised by a constructive judicial dialogue. The Court follows the relevant case-law of the ECJ when available and as far as the facts are identical. However, even if the ECJ has gone first, there may be situations where the Court comes to the conclusion that it must go its own way. The Court for its part is often called upon to go first, i.e. to decide on novel legal questions. The references to the Court’s case-law by Advocates General, the ECJ and the General Court have grown exponentially, giving the Court greater influence on the development of EU case-law than the drafters of the EEA Agreement and of the SCA may have imagined."

      On FoM, I think it's important to note that leaving via the EEA is just the beginning of a long process. The single market needs urgent reform, most notably along intergovernmental lines, and a more permanent stay in EFTA would help the bloc wrestle control of the EEA slightly from the EU. I'd also add that in 1992 4 of the then 7 EFTA members invoked Article 112, which isn't confined solely to FoM. Austria, Iceland and Switzerland cited the need to protect labour markets. See monograph 1 on eureferendum.com. There appears to be more scope and less rigidity to this policy than one might expect.

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  6. (2 of 2)

    How could we re-enter? Possibly via second referendum - do not underestimate the forces at work here. However, you need to be aware that the EU can pull the plug on the EEA with a single year's notice. If this happened, members would likely have no option but to accept what the EU (now significantly evolved since EEA inception and now gravitating towards proper federal status for the Eurozone) offered. Thus we would end up in a new two tier EU arrangement. At the heart, the Eurozone - where the seat of power will reside and around which, all decisions will be made. Outside of that zone will be 2nd tier members (including UK), likely expected to participate in the Customs Union so losing independent trade power yet not Eurozone so relegated in terms of importance to the EU project. Welcome to the worst of both worlds.

    Flexcit is not simply EFTA/EEA. In fact it used to present multiple options including WTO at one point. It's a long term approach which enshrines Single Market reform with the hope that the EU will drop custody of the the Single Market, passing it to UNECE. The timelines for this are likely to be significant. People are up in arms about a transition period of three years, but I can't see how we get to the UNECE position in under twenty. Politics being what it is, you can guarantee that it won't happen.

    The first question you need to ask yourself (and have an answer for) is why the EU would relinquish control of the Single Market when it benefits from that position so much?

    You and I both know that the EU is expansionist and will use every tool at its disposal to absorb countries in to its project. If the current Brexit talks teach both the UK and the EU anything, it's that the Single Market is an effective weapon. Where would the EU stand today in these talks without control of it?

    The EU is certainly not at the top of the tree when it comes to rules and regulations - but is it easier for these global bodies to deal with one federal entity holding a common position or 20-30 nations all coming with their own needs and interests?

    I'd also say this - I feel that the position presented on the lack of plan for leaving (both EU / Single Market) is misleading, although I'm not suggesting it's done deliberately. Cummings didn't have a plan because a referendum campaign group has no mandate to enforce a plan. The media, fuelled by their zombie like Westminster treadmill of existence, played the referendum like an election campaign and as you know - Vote Leave played up to it to a certain extent. But both the power and the responsibility lay with David Cameron who was, from day one, an ardent Remainer. Having no plan meant leaving uncertainty on the table which he perceived as anathema to anyone looking for a stable future in the whirlwind of Project Fear.

    Transition deal? I'd accept. Flexcit? No - because although it may espouse some technical brilliance, it's utterly brittle in the face of real world politics.

    If Leaving the Single Market means that we fall flat on our face and it's proven that we cannot stand on our own two feet, like Canada - like Australia or New Zealand - like India - and that somehow we are enfeebled and incapable, then going through that very process will be the only way to prove the point. But it could just be that we are big enough to make our own way in the world, if we're not prepared to listen to doubters with vested self interests.

    However, if half the population think we've not really left the EU, then the matter of the UK and the European Union will not be settled and this question will never be put to bed.

    Kind Regards
    Dan

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    1. Dan,
      There will be a 2nd referendum or GE and we will stay.
      Trying to blame Cameron for your lack of progress and having no plan is odd. The lack of progress is simple. Free seamless trade requires obligations, and Vote Leave promised something which can NEVER be delivered.
      Half the population didn't vote to Leave - 37% of the "allowed" electorate did and much of that was a protest, it was lacking the youth vote, and included people who expected to stay in either the EU Single Market or a similar trading relationship we were promised.
      "If Leaving the Single Market means that we fall flat on our face and it's proven that we cannot stand on our own two feet, like Canada - like Australia or New Zealand - like India - and that somehow we are enfeebled and incapable, then going through that very process will be the only way to prove the point." ????
      The idea that we would wreck the economy to see "if we can stand on our own feet" is bizarre, unhealthy and I don't understand what it even means. You suggest a country is like a person and that the Germans or Dutch cannot trade globally? I already trade globally - I already stand on my own feet. In what way am I held back by the EU? What you are suggesting is that every country in the EU is not independent. "enfeebled and incapable"? of what? The only lack of capability is from the Brexiteers who cannot understand trade complexity and the impact of geography. You use the examples of Canada (NAFTA & other close trading agreements with US & MX) & AU/NZ which have a high degree of trade integration & freedom of movement.

      Kind regards,

      D Morison

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  7. DM,

    Much as I'd love to enter in to a protracted conversation - I'm a busy man so will keep it short.

    * Whether you like it or not - only the government have the power to enforce a Leave plan, hence it was Cameron's responsibility to prepare for the eventuality. He didn't. In fact, what little detail he did give turned out to be a lie (immediate Art 50 invocation, case in point). As a Leave campaigner, I was happy to frequently make this point, even if the press repeatedly failed to engage with the concept.

    * Leaving the Single Market: I'm not suggesting that we wreck the economy to prove a point, but you knew that. If other nations can exist outside the SM, then there should be no reason why the UK can't do the same. What matters is transition. The point of my comment was to question whether Flexcit was a realistic/proportionate way to do this. It de-risks the process technically but not politically.

    * Re other comments about trade: You seem to have gotten hot under the collar and started making all kinds of odd synaptic leaps here. Yes, Germany and the Dutch can trade globally - behind the CET as part of the EU. Independent? How can Eurozone members be independent of each other when they have monetary union and are considering a centralised position on taxation (amongst all the other competencies which they've handed away)? As for the complexity of trade (which, in your bitterness, you disparagingly suggest all Brexiteers are incapable of comprehending) yes, all trade agreements will result in compromises in sovereignty by necessity - but to stand trade centric NAFTA alongside the deeply political machinations of the EU and its handling of the Single Market is disingenuous.

    Dan

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    1. Governments can be directed by outsiders. What do you think is the purpose of the think tank industry? Also, what makes Flexcit politically so difficult to pursue? I'm also not, as you suggest, bitter about anything.

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    2. Dan,

      Thanks for your reply.
      I have never had a protracted conversation with a Brexiteer because once the detail starts they scarper and shout traitor, or "we must learn to stand on our own two feet", or the best of all "it's not about money it's only about sovereignty"

      I fully understand only our government can enforce a plan. Cameron was to blame for putting a binary choice with no clear mechanism or clarification of what a Leave vote meant. After that we have had over a year to come up with plans and we have very little.
      The reason for a lack of a plan is that nobody can face the truth that the referendum result to promise free trade without obligations is impossible. So Barnier has been waiting for clarification and he will still be waiting until the UK accept the "we buy more from them" school of economics is a fantasy.
      "If the other nations can exist outside the SM.." which nations? Japan? , Canada? - Geography plays a huge role in the type of trade we conduct. I cannot send my products in a container to China and hope for the best. That is just reality. I need customer service (time zone and language), warehousing, legal conformity, product regulation standards, warranty, taxation and so on. In the SM I can ship and return anywhere without borders. This is my domestic market which you are placing barriers to.
      Globally I can already trade but the CET is not a barrier. Germany and NL are in the Euro but I could have mentioned SE & UK as the currency has little to do with global export ability. You highlight the two obsessions of Brexiteers - the Euro (we are not in it) and tariffs (not the biggest issue in terms of barriers).
      NAFTA is a very weak and inefficient shadow of the EU SM. However it is the basis for more integrated agreements and is the free trade vehicle for North America, and if we bordered the US we would want to be in it. So in that sense the comparison to trade by region is relevant as with the trans-Tasman agreement between US/CA.
      I'm confused by what Brexiters want but I'm certainly not bitter, and I am pleased you acknowledge international treaties impact sovereignty. Not everyone in the Brexit religion understands that.

      D Morison

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    3. Trans-Tasman agreement between US/CA*. =NZ/AU

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  8. Oliver,

    Firstly - just to clarify, if you re-read the thread above, you'll see that the comment about bitterness wasn't directed at you (and I'm told it's not the case by the person in question anyway). Admittedly, blog comments aren't the best place for this kind of discussion.

    Secondly, I appreciate the detailed response but feel that the point about UNECE control of the Single Market is hugely important. It may well need significant reform, but whereas it's technically nice to locate it under the auspices of UNECE I can't see how it can be achieved politically. The SM is a prime control mechanism for the EU. It will not relinquish its position or power - and a small team of UK bloggers will not convince the other 31 member nations that it's a priority, even if Churchill endorsed the model 60-70 years ago.

    The UK has a problem to solve now. It seems that Flexcit demands adherence to the notion that addressing the technical issues of Brexit are the priority, solved by a multi decade coast towards a new governance model (this is before we get in to The Harrogate Agenda and domestic reform of politics). The truth of the matter is starkly different as you are well aware. Politics at this level is a top down high level connivance, the agenda of which is frequently hidden from public discourse. It's the kind of politics that lets a supranational entity sprawl across 28 nations, undermining sovereignty, grabbing competencies and amassing power without ever being honest to the people about the federal destination. The kind of politics that turns its back on a manifesto pledge to have a referendum on the European Constitution off the back of a technicality when it becomes the Lisbon Treaty. The kind that likes you to vote again when you give the wrong answer. As an entity ,it has a huge amount at stake.

    So the technical journey out of the EU isn't the biggest problem here - its really not. We have a huge political challenge and many Leavers are completely naive about it. Nobody has been more wrong in recent years than Douglas Carswell when he announced 'Job Done'. We have such a long battle to fight and hoping that the good people of Europe will hand off the Single Market to the UNECE is just an act of misdirection.

    IMHO that is.

    I'm not expecting further response to this but sincerely hope you consider the point fully. Life is too short and we have so much to sort out.

    Regards
    Dan

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