Tuesday, 1 August 2017

Brexit: The FTA delusion

This, from Professor Grey at Royal Holloway University, is useful in wading through the misconceptions around the plausibility of Britain coming to terms on a Free Trade Agreement with the European Union as opposed to rejoining EFTA:

"The complexity is that the Brexit situation is the other way around from a normal trade deal. The UK is a member of the single market and is seeking to become a third party. Which means that predicting ease of negotiation on the basis of existing harmonization entirely misses the point. This will be perhaps the only trade negotiation in modern times which is about diminishing rather than extending free trade. 
In concrete terms what this means is that regulatory harmonization at this moment in time isn’t the issue. What is the issue is regulatory harmonization in the future. What happens when EU rules change (as, in minor ways, they do on a daily basis)? Who decides on those changes and who adjudicates in the event of disputes? The answer is the EU and the ECJ. But the UK is leaving both of these.
At a deeper level, any form of single market access via an FTA is wholly different to single market membership, and one way of looking at that is that free movement of people (and goods, services and capital) is about the removal of one of the central NTBs that no FTA touches.  
Understood this way, Fox's argument is just a convoluted version of the 'have our cake and eat it' strategy: trading as if a member of the single market and yet not bound by its core principles."

The post acts as a rebuttal to those like Liam Fox and the gang at Brexit Central, whose misunderstanding of trading complexities is highlighted by their continued comparisons with trade deals (like CETA) not even remotely relevant to the structure of the relationship that Britain ought to be carving with the EU. Though he does later falsely assert that the UK has a 'perfect' trading relationship concerning its current terms with the European Union, Grey's blog is well worth reading and highlights the traps of most theoretical approaches to Brexit.

His criticism is entirely valid and stands as the fundamental reason why rejoining EFTA and leaving the European Union through the EEA is not just preferable, but the only workable option. What makes this so is the fact that EFTA membership, and by virtue the ability to participate fully within the single market, is a ready-made package which almost entirely eliminates the economic and political uncertainty that couples every other Brexit route. The same cannot be said for an FTA between the UK and the EU. Advocates of what they are calling 'the simplest and easiest FTA in history' are kidding themselves and missing several points. The first is that, by the very act of leaving the European Union, Britain becomes from the perspective of Brussels a third party country. This isn't down to any negotiating spite, but rather the simple mechanics of a Treaty-bound and rules-based organisation. Becoming a third party renders the state of having regulatory harmonisation inadequate.

North expands on this, writing:

"The Member State cannot argue that, because it is convergent, it can be exempted from other controls – particularly border controls. Put simply, convergence is the "starter for ten" which gets your products as far as the border. Once there, the documentary and physical checks must be carried out. 
Essentially, what it amounts to is that, inside the European Union, members "enjoy" a system of internal controls, which allows free movement of goods throughout the Union without border checks. 
For those operating outside the Union, conformity with EU rules is still required, but additional checks are applied before the goods can pass through the external border to enjoy free circulation within the Union. 
Regulatory convergence/equivalence is a necessary but not sufficient condition for entry."

The second point to be made relates to the importance of tariffs. Or rather, their lack of importance. Most FTAs are not delayed, complicated or discontinued over tariff agreement. Instead, it is non-tariff barriers (NTBs) which pose the much greater threat to the productivity of any trade agreement between the UK and the European Union. NTBs, mostly in the form of regulatory divergence, are central to trade because they preside over such a wide range of issues: mutual recognition and inspection of certificates, standards, qualifications or logistical issues such as the safety or efficiency of infrastructure. Whereas tariffs are purely a realm of fiscal policy which can be decided upon by suits, non-tariff barriers require more wide-ranging investigation and the input of specialists, making them more difficult and cumbersome to negotiate. 

Mr Grey also points out, in my view correctly, that since border controls are a type of non-tariff barrier, and the domestic political climate demands that this be a red line in negotiation, the negotiation of an FTA will soon hit the rocks. Dealing with non-tariff barriers on a global scale, simply by agreeing upon fixes collectively at accords, rather than through hundreds of individual, bilateral deals is the key to advancing global trade. And, in the unlikely event that an agreement is concluded by both parties, which body will adjudicate legal disputes within the FTA? The European Court of Justice seems to me to be the obvious candidate for such a role (though, incidentally, becoming an EFTA member would virtually eliminate any such subordination). 

A far better solution than the negotiation of a Free Trade Agreement appears to be steps towards the creation of a genuine European single market. This is the second of the two major purposes of Brexit. FTAs are old hat precisely because they are lagging slowly behind the threats and complications to world trade that they were initially designed to eliminate. In leaving via the EEA and joining EFTA, the UK should aim to become a leader in a process that has already been underway for some time: detaching the EU from the EEA Acquis. In other words, play a role in building up global and regional bodies (like UNECE) which set standards and implement laws on behalf of Brussels anyway. I say let's move with the tide and not revert back to a system of trade that now appears almost entirely defunct.

1 comment:

  1. This was always a very obvious logical fallacy that 'Leave' have never addressed.

    If you want to leave so you can be different, then what use is presently being the same?