Wednesday, 23 May 2018

A drop in the ocean


For those who may have missed it, a useful slide was tweeted out yesterday by Michel Barnier's adviser, Stefaan De Rynck. As we see above, it depicts the nature of the EU's regime on external controls imposed upon third countries. The red text was not added by me but is in fact very interesting. It highlights the extent to which a customs union relates to border friction, and by comparison the use the Single Market (EEA) has in diverting controls away from external borders. This will be of particular significance to the Irish conundrum.

In essence this slide tells us that when in a customs union with the EU, checks for proof of origin and payment of tariffs are not necessary. There is a very simple reason for this. By virtue of the fact that members of a customs union have a Common External Tariff (CET) wrapped around them, it can be assumed that a good inside that customs union either originates in the EU, in which case it automatically qualifies for preferential treatment, or it has filtered through the CET in order to move on to a member state, and so also qualifies. Checks for origin therefore move to the external borders.

In reality these two checks are pretty minor, but they become important precisely because in order to carry them out, a modest amount of infrastructure is required. Typically this amounts to customs posts, a lorry park and officers instructed to scan barcodes on documentation for feeding into highly integrated computer systems. The technological aspect of customs procedures is likely where the British government will struggle most, and I think this element of the Irish border issue is increasingly under appreciated. Violence is not the only potential problem to worry about.

In the event of the absence of a customs union between the UK and EU, exporters will likely need to provide some form of origin declaration at a border facility and where necessary proof of tariff payment. Some hauliers will also be asked to provide an invoice when transporting goods on behalf of another company. The issue with these stoppages is that they build up and create time-consuming queues. It is unclear how long customs queues will be and what material impact they will have upon, especially, just-in-time supply chains. Disruption may mean some supply chains are lost altogether.

Customs checks imposed upon British exporters in the event of an absence of a customs union will be pretty painful, but they are merely a drop in the ocean when we compare the impact with the impact of leaving the Single Market. It is here, denoted by the black ink in the graphic above, where much of the enforcement regime - where the checks come in - will be fundamentally altered. As I have been at pains to point out at this blog, one of the primary benefits of the Single Market is that it positions checks on product standards at the point of production, before goods reach importing member states.

This point is absolutely central to understanding the effects of leaving the EEA on the EU's enforcement regime and on our borders and supply chains more widely. The Single Market plays host to an intricate web of regulatory agencies that are responsible for cross-communication in the event of potential criminal activity and maintaining information on the completion of checks and the manner in which checks out to be carried out. This web is called the EU's market surveillance programme, the primary mechanism held responsible for keeping our borders frictionless.

Through a Rapid Alert System (RAS), agencies communicate with each other in order to weed out any counterfeit goods or general customs risks. Customs is intelligence-led and the market surveillance programme is designed to facilitate information-sharing through complex databases and analysis. Member states are in constant contact with each other through this largely invisible system, ensuring that the free flow of goods can continue for exporters and importers, and that fraudsters can be caught and prosecuted if necessary.

The text in black ink above outlines the breadth of influence possessed by the Single Market, and just how important it is to us. It is one of the main reasons why I don't support leaving the EEA. To be a part of the Single Market means to be a part of its enforcement regime. Leaving those regulatory agencies (which comes with de-alignment) means the relevant checks are re-positioned to the point of the border. This is just how trade works. This concept stands as the primary structural difference between a Free Trade Agreement and the Single Market.

It is a little ironic that just hours after we see this slide emerge, a van driver speaks to James O'Brien on LBC and outlines the difficulties he faces outside the Customs Union. He spoke passionately and articulately and I sympathise with his situation. This is why I despise the constant lying from figures like Dan Hannan and Kate Hoey, who serve only to maximise their own partisan audience share. The point I seek to make, though, is that the bigger picture paints the Single Market as a far more important instrument in the border cleaning process. I think a re-focus is in order.

Friday, 18 May 2018

The more things change


That I can spend seven weeks completely isolated from Brexit noise, return and slot seamlessly in to the chronology of events speaks volumes to the uncomfortable dithering over our EU withdrawal. It has nothing to do with me or my knowledge. It is precisely because nothing of any particular significance has taken place that I needn't have worried about losing track of things. We are no closer to reaching solutions to the core problems and this government instead prefers to dance around flirting with made-up answers to complex questions. See maximum facilitation.

Upon returning to Twitter's wonk bubble I notice immediately the familiar stench of intellectual atrophy emanating from Westminster. Ignorance of concepts still pervades what is left of trade debate and there are no signs that anything will improve any time soon. Some politicians still believe that an FTA can achieve frictionless borders with the EU if coupled with advanced elements of mutual recognition. Others are convinced that a no deal Brexit will not give rise to any new technical barriers to trade on the grounds that we already have full regulatory equivalence.

The more I have analysed Brexit the better I have come to realise that I have been right over the past year to place my faith in the inevitability of a soft Brexit. The irony from the outset has been that the harder our leaders have dug for a hard Brexit, the more clearly they have exposed the underlying necessity of a soft one. To Leavers I say this isn't half bad and we can make the most of a  much better situation, and to Remainers I say that the worst is probably over. The kicking of the can further down the path is not at all coincidental. It is the effect of red lines meeting a brick wall of trade realities.

In all of this I still believe in the primary purpose of Brexit, itself a political (not economic) pursuit. People ask me why I haven't converted to a Remain position and my answer has stayed more or less the same. I believe the UK is better off with the Single Market and worse off with ever closer union, which I believe extends the chain of accountability and pushes the levers of governance further away from citizens. Remaining would also still equate to very limited wiggle room for the kind of treaty change we need in Europe.

I also believe that a gradual regulatory separation between eurozone and non-eurozone EU members was to become a necessary component to future European integration. In this I saw an Efta Brexit as a mechanism by which we could jump-start a slightly different power dynamic on the continent, enabling us to position ourselves at the forefront of a European alternative to close-knit political union. Whether this happens in practice is anybody's guess, but there is a lot to be said for the argument that the EU's inner eurozone core is in need of special attention.

The case, now, for an EEA Brexit is unchanged and really rather simple. In retaining the EEA framework, we avoid the economic consequences attached to leaving the Single Market. This will prove invaluable because British supply chains have spent upwards of four decades acclimating to the EU's intricately developed systems. Sudden disruption is to supply chains what Christmas is to turkeys. Furthermore, by slipping into a ready-made package we are better able to eliminate much of the can-kicking and conceptual haziness from the process.

In all honesty the boat may already have left the harbour on applying to rejoin Efta, but this needn't cause too much in the way of panic. If the UK finds itself floating in a bespoke EEA position in the forthcoming years, application to rejoin may seem like the natural next step in order to maximise consultation and participation at key bodies within the EEA. The framework is based upon extensive collaboration and mutual trust, and its inherent flexibility makes it worthy of more serious consideration as a future UK pit stop.

Whatever red lines still breathe life in Whitehall are sure to die as negotiations progress. There are too many to work with and some are in direct contravention with others. And in all of this time wasting lies the uncomfortable fact that there is actually little point in leaving the Single Market. Standard setting is increasingly organised at a global level and the world is slowly converging on multilaterally agreed regulations. Any reductions in gross immigration will likely be modest and we will be left feeling as if we have opted for the short straw come the end of it.