Tuesday, 3 July 2018

Roadblock


Brexit has been a topsy-turvy journey for me. I have made and lost friends, made countless mistakes, learned a great deal about trade and politics and perhaps even more about myself and where I might like my career to go. My main regret is not bothering to learn as much as I have quicker so as to nail down a more central and professionally useful spot within Brexit's intellectual domain. As it is I am left in what I can only call an idiosyncratic position, outside of any relevant bubbles and unable to influence as much as I believe I ought to.

If you are a consistent reader here you will by now know most of the story. It started with a liking to Faragism and the potential of UKIP, transitioned into participation in Vote Leave circles and winded up inside the belly of the Leave Alliance. I have met everybody there is to meet and worked with enough characters to last a lifetime. Along the way there has been a lot of mind-changing and a gradual acceptance that policy - particularly on this scale - is never as easy as it is portrayed within the confines of referendum narratives.

Last week I tweeted that I was now off the Efta/EEA bandwagon. My hands have been forced by conflicting truisms more so than any developing dislike for Efta. I still support a soft Brexit which allows us to leave behind as much of the political baggage as we can whilst retaining that all-important symmetry in our regulatory architecture. The world has changed and so have the nature of our supply chains. We needn't inflict undue damage onto ourselves by pulling frantically from systems we benefit from and will not be able to replicate unilaterally.

I should first of all clarify that I like the Efta position and any remaining advocates of the option can and should consider themselves political allies of mine. I respect the advantages that come with pooling resources and technical expertise that comes with being part of a trading bloc, no matter if we shrink from 28 to 5. I also think the EEA Agreement provides quite a steady framework with room for maneuverability by means of country-specific protocols now seen with the parties states. I will not renege on all the positive claims I have made about Efta/EEA.

The conceptual conflict which underpins any accession to Efta is the inevitable clash between continued adoption of a comprehensive customs union and Article 56.3 of the Efta Convention, which states (with my emphasis):

"Any State acceding to this Convention shall apply to become a party to the free trade agreements between the Member States on the one hand and third states, unions of states or international organisations on the other."

In other words, since a comprehensive customs union replicating the existing CET is a necessary, though not sufficient, component in preserving a frictionless Irish border, and since the UK Government has shown no promise in being able to table a workable alternative, keeping a customs union (covering substantially all the trade between the parties) appears to be inevitable. I am ambivalent about this because I recognise both the advantages and disadvantages to being inside a customs union. It is not my preferred outcome but we have to deal with challenges head on.

In continuing to be wrapped inside the CET, the UK will have no tangible power over tariff alteration. This will come at a cost as we will find that some of the independence of our trade policy is sacrificed. Moreover, the EU's external tariff walls are not aligned harmoniously with the FTAs of Efta, whose agreements focus heavily on issues like tariffs on industrial goods and fish, dispute settlement, procurement and sustainable development. Regulatory practices will remain tied to the architecture laid out in the EEA Agreement. Tariff differentials are where FTA contents diverge from the CET.

Efta does not and cannot influence the EU's external tariff walls. Its constituent countries simply deal with the hurdle when and where they export, which explains why Norway's border with Sweden is not frictionless. Stark differences in policy construction, especially in the fishing and agriculture sectors, are precisely why the EEA Agreement chops off chapters 1-24 of the Community's coding system on tariff application. This mostly comes in the form of subsidy and tax differentials. The CAP and CFP therefore fall away from the EEA and Efta/EEA countries deal with the ensuing friction.

There are currently 28 Efta FTAs, all of which differ in varying respects to parallel EU agreements. This clash stands as the primary barrier to any remote chance of accession to EFTA. It is something I should have noticed a long time ago, but alas I have been a little slow. The focus now needs to be directed towards the potential of an Association Agreement (AA), now the sole workable Brexit proposal, whose strength is derived mainly from the fact that it is conceptually very vague. Effectively, an AA is an empty box in which to place all the content and baggage of negotiations.

AAs can more easily be sold to the public as trade deals and, from the perspective of government, can provide shelter to fudged language in order to get us past impasses created by red lines. Moreover, a UK-EU AA sits firmly in line with Article 8 of the TEU, which obliges the EU to form comprehensive relationships with neighbouring countries within its sphere of influence. We would have the opportunity to create what may eventually turn out to be a framework adjacent to that of the EEA. This would guarantee full participation in the Single Market.

The EU has been willing to negotiate from the outset. May's cabinet and parliamentary party have prevented clarity of proposals and we have been dithering hopelessly for months. Insiders within Brussels, like Andrew Duff, are beginning to point towards an AA as a useful escape route just in case things go south. We do not need to flirt with a WTO 'fallback' when there is a much more practical and amicable solution now on the table. Efta is out and so too is an FTA. We need to think outside the box and explore the uncharted waters of association.