Sunday, 10 December 2017
It's a minus, minus, minus from me
Those of us keeping up to date with Brexit will know by now that our withdrawal options are narrowing at an extraordinary pace. This is now largely because the issue of the Irish border is guiding us towards a much softer, more integrated destination, and I don't necessarily think this is a bad thing. We are headed for a stay in the Single Market one way or another. Our focus should now be on how best to avoid the Customs Union, if at all possible.
This is where the Canada option falls way short. At first glance, it does nothing for the situation in Northern Ireland. Canada, despite its FTA with the EU, is still a registered third country. The EU has no business in its internal affairs, so enforcement and surveillance strategy is focused at the border. In other words, the checks and inspections make for border friction. FTAs steer regulatory regimes towards each other and reduce tariffs. They do not produce frictionless borders.
David Davis created a new term out of thin air this morning on the Andrew Marr show. He claimed that we could have CETA plus, plus, plus 'within minutes' of leaving the EU. I don't mean to take him too literally, but he is living in la-la-land. I always considered CETA plus to be a term completely devoid of any real meaning. CETA plus, plus, plus just takes the cake. I don't think readers should treat it any differently to any other example of vapid Tory sloganeering.
The first point to make about CETA plus, plus, plus is that it is not only favoured by the UK. It is also favoured by Canada and South Korea. This is because embedded within both CETA and the EU-Korea FTA are Most Favoured Nation (MFN) clauses. MFN clauses basically tell the EU: 'if in any other FTA you conclude, you agree to terms which are preferential to ours, we will automatically adopt them too'. Were the EU to agree to CETA +++, therefore, the terms offered would be extended to both South Korea and Canada.
But this is not worth overthinking. CETA +++ is not worth contemplating because the EU will not allow it. This is for the very reason we spoke about the other day at this blog: the EU is a protectionist bloc and must protect the integrity of its market. This is not a difficult concept to grasp, unless you are one of the headbangers who thinks the EU is protectionist when it suits arguments for leaving and at no other time.
Secondly, a bespoke CETA just isn't what we need. It doesn't take into account a sensitive peace agreement. It isn't conducive to the preservation of our intricate and integrated supply chains, which over 40 years have benefited from a widespread removal of non-tariff barriers to trade and a market surveillance programme designed to keep inspection contained to the point of production. It is also not a model for us due to its very limited services coverage.
In general, this is common of FTAs - even those which are modern and considered ambitious. CETA does not cover financial or air services, and those services (such as postal and maritime) which it does cover are accompanied by a large list of reservations. If we look at passporting, we see that in order to take advantage of the EU financial services ‘passport’, Canadian firms will have to establish themselves in the EU and comply completely with EU regulations. No exceptions.
The short of it is that CETA is not even remotely comparable to the EEA. The terms built into the framework of the Single Market are not to be replicated from the outside and nor should we bother trying. This is perhaps one of the best arguments for the UK's continued participation. We are in large part a services economy and leaving the Single Market will mean throwing much of this expertise and prosperity away.
There will at some point be a Free Trade Agreement between Britain and the EU. Its nature, though, will not be defined by efforts to converge regulatory systems, since they are already harmonised. The challenge in an eventual negotiation for the EU would be how best to make sure it looked completely different to membership. For the UK, it would be a matter of using whatever leverage it can to maintain as large a semblance of membership of possible. It will be a tug of war we are likely to lose.