A Social Democratic Future

Policy paths towards equality and efficiency

Brexit

May’s Contradictory Deal

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The Draft Withdrawal Agreement (WA) The Draft Withdrawal Agreement was published on the 14th November accompanied by a  Revised Political Declaration on the 22nd November (the May deal or agreement).

The Northern Ireland and Ireland Protocol of the legally binding Withdrawal Agreement (once approved and ratified) provides for a NI backstop that diverges in both principle and spirit from that defined in December 2017.

It is thus termed, here, the WA backstop, to differentiate it from the overarching NI backstop.

A common customs territory is created, where no quotas or tariffs would be applied on goods circulating between the UK and EU. It is not comprehensive, however, failing, for instance, to make express provision for road haulage or agri-food movement (services), the absence of which would result in bottlenecks and delays at the UK-EU border.

Even more crucially, the WA backstop does not provide for continuing regulatory alignment at the UK-level for goods, which is also necessary if continuing full frictionless trade between the UK and EU is to be maintained.

In order to maintain an open intra-Ireland border additional provisions are made within the WA that will apply to NI only and not to the rest of the UK.

These include NI’s full adherence to the EU Customs Code and its continuing regulatory alignment with SM rules with respect to the technical standards of goods, to sanitary and phytosanitary measures relating to animal, plant and food safety, to environmental protection, to agricultural production and marketing, and to rules relating to VAT and excise in respect of goods, and to state aid.

The European Court of Justice (EJC) will continue to exercise direct jurisdiction over the application and interpretation of these rules.

NI, in effect, would be treated differently to the rest of the UK under the WA backstop, making it impossible for the DUP to support the agreement.

It will become operative at the end of the transition period on 31 December 2020, until when the UK will continue to apply full CU and SM rules, unless alternative other arrangements that are consistent with an open intra-Ireland border are put in place.

Otherwise the transition period is extendable by mutual agreement for up to a further two years until December 2022, subject to the government requesting an extension by 1st July 2020 and then its subsequent approval by the Joint Committee that will be set up to oversee the WA.

The government’s expressed intention is that the WA backstop would be rendered unnecessary by the UK entering into a subsequent agreement with the EU that would establish a future ‘deep and special future economic partnership’ between them.

To that end, the WA shoulders a joint ‘best endeavours’ duty on both parties to finalise such an agreement.

More specifically, Article Two of the Ireland and N.Ireland Protocol within includes provision for specific ‘best endeavours to reach a future agreement which supersedes the WA backstop by December 2020’ to be made.

When activated the WA backstop arrangements would then, according to Article One of the same Protocol, continue indefinitely “unless and until they are superseded, in whole or in part, by a subsequent agreement”.

The current draft of the WA does not include any time-limit on, or for any right for the UK to unilaterally exit the backstop after it comes into operation; nor does it define in which precise circumstances when it would no longer apply.

The UK commits to continue to adhere to EU State Aid and Competition Policy, and not to dilute existing EU social, labour, and environmental standards – the so-called non-regression clause, with provision is also made for both parties to jointly agree to raise them.

No provision is made in the WA for services at either the NI or the UK level. Nor is provision made for the UK to benefit from existing and new trade agreements with third-party countries.

Turning to the accompanying non-binding PD, no mention of frictionless trade is made, even though the original version published on the 14th November did, indicating the fluidity of the document and the PM’s tacking to her party’s hard-Brexiteer faction in response to their initial hostile reaction.

It, however, does air the possibility of using technological fixes and ‘trusted traders’. This suggests that government may hope to resurrect the Facilitated Customs Arrangement (FCA) included in the 2017 Brexit White paper to build and improve on the barebones customs union set out in the WA.

That FCA was considered and ruled-out as unworkable by the EU during the WA negotiations. For reasons explained in https://www.asocialdemocraticfuture.org/2018-brexit-white-paper/and little has changed since then, other than the political environment within the Conservative party.

The PD gives emphasis to the development of an independent trade policy with reference made to a future (trade?) agreement ‘that will obviate the need for checks on rules of origin’.
Such an outcome, however, assumes either the maintenance of the EU’s Common External Tariff (CET), or undue reliance on a future technological fix that would allow the UK to levy differential tariffs without border formalities.

The government conceded in Section 181 of its  November  Explainer on the Draft Withdrawal Agreement that, indeed, ‘The (WA) text reflects the UK’s commitment to align with the EU’s Common External Tariff, and with the Common Commercial Policy on trade in goods with third countries to the extent necessary give effect to these (WA backstop) provisions’. But to do that would probably prevent the UK negotiating, and certainly bringing into effect, its own trade deals with the Rest-of-the-World (ROW), save for services.

The government has been, therefore, caught facing in different incompatible directions, when explaining the WA. It will continue to do so, thus undermining its own position, until that it is made consistent and fit for purpose.

Such basic confusion, reflecting the conflicting internal party pressures within the Conservative Party, hardly augurs well for any expeditious trade negotiation process that can culminate in a 2020 trade deal. That, of course, in any case, assumes that the May deal is approved by the House of Commons next year, which it won’t, at least in its current form.

Jersey rather than Norway-now.

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The phony war between the EU and UK ended in October. Brussels made it clear that the Northern Ireland (NI) backstop – continuing adherence to EU customs union and single market requirements for goods sufficient to prevent the return of customs controls on the inter-Ireland border – meant precisely that: one indefinite in duration, spatially specific to NI, involving a regulatory border down the Irish Sea; at least, if and until UK-wide arrangements are agreed during the subsequent ‘future relationship’ negotiations.

Mrs May on her part re-affirmed that Westminster could never accept such a splitting of UK customs territory. She offered instead to extend the transition period, during which the UK would, in effect, continue to be part of the EU-wide Customs Union (CU) and Single Market (SM), beyond December 2020, while insisting that it should still be time-limited to end before 2022 – when the next election is due in accordance with the Fixed Term Parliament Act and rejecting any specific NI ‘backstop within the backstop’.

These respective red-lines are, of course, incompatible. They must give if a calamitous no deal exit is to be avoided. The UK parliament will not approve a WA that involves an Irish Sea regulatory border, which, in any case could itself infringe the 1998 Good Friday agreement, at least in spirit.

On the other hand, a time-limited backstop constitutes a contradiction in terms: it will not be infringed (or, put another way, be required, or be necessary) while trading arrangements that obviate the need for NI border infrastructure are either maintained or are committed to into the future by formal treaty within interruption; the problem is that the date when any such future agreement could be made is unknown.

Three key points need to be borne in mind. First, the WA is legally binding and needs a super-majority vote approval by the EU27 members; it then will be subject to a ‘meaningful’ vote in the UK Parliament. But the accompanying political declaration plotting the future economic and political relationship between the UK and EU, is not. It can therefore be vague and aspirational in a way that the WA as a precise legal document cannot. Second, any replacement Canada-style comprehensive trade agreement is likely to take years to put in place. It almost certainly will not be ready by 2022. And, third, of course, politics trumps economics in Brexit.

The first two explain why the EU feels that the backstop requires legal backing in the WA. Without it, the UK could without legal impediment unilaterally decide when and how its future proposed trading relationship would prevent the need for border infrastructure within the island of Ireland. Its existence  – given the UK blood-red-line against an Irish Sea regulatory border and/or specially agreed arrangements for the Province – mean that the entire UK, as a minimum, will need to: (i) stay in an equivalent CU with the EU; and, (ii) cede continuing regulatory alignment with EU regulations concerning goods.

That is, at least until an alternative trade agreement and/or technological fixes or arrangements that are consistent with no hard inter-Island border are mutually agreed with the EU and put in place. But, as noted above, the timescale for that end-point looms beyond 2022. Nor is it even clear how a replacement Canada-style agreement could ever avoid the re-imposition of a hard border within Ireland. Reality finally has caught up with the wishful thinking and/or hubris: the aspirations of the hard-Brexiteers as reflected in Mrs May’s Lancaster House speech conflict with minimising economic damage to the UK, and arrangements that can maintain frictionless trade without border controls within the island of Ireland rendering unnecessary the NI backstop.

The third means that May will need to depend on Labour votes to secure parliamentary approval for any Chequers Mark 2 agreement that she shortly could and needs to make with Brussels. The formal Labour position is to vote against any agreement that does not meet its six tests that in effect require UK continuing participation in arrangements equivalent to the SM and CU.  On her own benches, the hard-Brexiteers of the European Reform Group (ERG) forswore after Chequers that they would not accept any variant to it. If they stick to their guns that would mean, unless Labour shifted its position, that parliament would vote down any Chequers Mark 2 agreement presented to it.

But, as no parliamentary majority for a no deal exit exists, such a concerted ERG rebellion that led to the deal being voted down would risk either a second referendum or a general election. For that reason, But no parliamentary majority for a no deal exit exists. A concerted ERG rebellion that led to a Chequers Mark 2 deal being voted down would risk either a second referendum or a general election. For that reason, it is quite possible that many of its posited 80-odd members will not actually vote against the government to a point where the numbers that do could be offset by enough Labour MP’s willing to vote – even against their party – for an orderly exit lifting economically damaging uncertainty.

One proposed possible way to avoid such a disorderly exit is for the UK to park itself into the European Economic Area (EEA), at least on an interim temporary basis until future long-term arrangements can be agreed. Nick Boles MP, close to Michael Gove – a possible leading Leaver contender for prime minister in the event of the ouster of May – has most recently put forward the case for Norway for Now.

The UK would scrap the planned transition period starting in March 2019. It instead would rejoin the EEA for three years, alongside a ‘temporary’ customs union with the EU: making it, in effect, Norway-Plus for Now. Boles claims that this model offers an escape from a no deal exit that is supported by  a broad swathe of MP’s, including prominent Conservative Remainers, such as Nicky Morgan. Back in February, the Labour Campaign for the Single Market , supported by prominent Labour Remainer MP’s unreconciled to the Corbyn project, such as Chuka Umunna, Chris Bryant, and Ruth Cadbury, demanded that – as a minimum – the UK should remain part of the European Economic Area (EEA) allowing it to stay on a permanent basis in the single market for both goods and services. When push comes to shove some could be expected to support support interim EEA membership, plus UK continuing CU participation, as a second-best alternative.

But Norway-Plus for Now appears to offer a red herring for three main reasons. First and foremost, the EEA is not designed to be a temporary holding pen for an exiting EU (and EEA) member wanting to put into place a comprehensive replacement bilateral free trade agreement with the EU, it had just left. At the end of October, Norway’s prime minister, Erna Solberg, highlighted that -albeit rather delicately and diplomatically – as ‘a difficulty’, no doubt fearing the entanglement of her country into UK Brexit politics and the possible disruption that it could cause both domestically and across EEA-linked institutions, and the European Free Trade Association (EFTA) in particular. Indeed, the UK economy in size dwarfs that of the three extant EFTA/EEA members – Norway, Iceland and Liechtenstein – combined. But, even if they were prepared to welcome the UK into their club on such a basis with open arms, the EU has shown no indication that it would be prepared to fast-track the UK to re-join EEA through an application to the European Free Trade Association (EFTA) in such circumstances.

The EFTA/EEA route from the onset of the negotiations was offered by Brussels as a counterpoint alternative model to a Canadian-style trade agreement for the UK to pursue. The May government chose  the latter. That the EU would now pull out all of the stops to allow the UK to join as a temporary expedient in the compressed timescale now available before a March 2019 exit, while at the same time ditching its red line that the NI backstop cannot be temporary or be time-limited, is, frankly, inconceivable.

Second, the mechanism for the UK to join the EEA by becoming a member of EFTA, on the face of it, appears incompatible, or at least inconsistent, with the UK remaining in a CU with the EU. An ex-Director-General  of the EU Legal Service, pointed out in https://twitter.com/piris_jc/status/1056860779427913728 that such membership appears inconsistent with Article 56 (3): Any State acceding to this Convention shall apply to become a party to the free trade agreements between the (EFTA) Member States on the one hand and third states, unions of states or international organisations on the other: the accession to EFTA of a new Member State (UK) aiming at a custom union with the EU appears inconsistent with it entering into existing  EFTA free trade treaties.

It is perhaps possible that on a needs-must basis, special arrangements for the UK could be sought and engineered. But not for a temporary and time-limited period of membership that both the EU and EFTA members are uncomfortable with. The UK could not make an application to join EFTA until it had left the EU in any case.

Third, all relevant Internal Market legislation is integrated into the EEA Agreement so that it applies throughout the whole of the EEA. All EU members are contracting parties to the EEA, along with Norway, Iceland and Liechtenstein. The four freedoms of the free movement of goods, capital, services and persons lies at its heart. In addition, the EEA Agreement covers horizontal areas, such as social policy, consumer protection, environment, company law and statistics; to ensure equal conditions of competition throughout the EEA, it mirrors the competition and state aid rules of the EU Treaties, while also providing for participation in EU programmes, in return for agreed budgetary contributions. This would mean that the UK would need to maintain freedom of movement (FOM), continue to pay budgetary contributions to the EU, but now – as a non-EU member – as a rule-taker.

Norway-Plus-for-Now could not be time-limited without infringing the EU NI backstop red-line. That so, given the complexities and uncertainties of negotiating a replacement free trade agreement, the arrangement would need to be indefinite one, contrary to its prime purpose of providing a temporary holding pen for the UK. The prospect of the UK being a ‘vassal’ state indefinitely is deeply troubling, not only to hard-Brexiteers, but to some Remainers, such as Dominic Grieve, who have indicated that a second referendum would be preferable. Many Labour MP’s, such as Caroline Flint, representing leave-voting constituencies on their part have expressed a willingness to vote against such an arrangement, while accepting a principle of a continuing CU, because UK EEA membership would involve full participation in the single market and thus continuing FOM, putting themselves at odds with their Campaign for Single Market colleagues.

The end-game to secure a deal that is politically acceptable in both Brussels and Westminster is imminent. Time is certainly running out to avoid mounting abortive and wasteful expenditures on preparations for a disorderly ‘no deal’ exit with its accompanying market turmoil. The Withdrawal Agreement (WA) should be agreed at least in principle by an EU Summit in November – certainly no later than early December – for it to be approved by the scheduled EU Council on the 12/13th December.

Rather than making a CU an adjunct to UK continuing full involvement in the SM through the EFTA/EEA route, as Norway-for-Now does, a more bespoke arrangement that focused on extending UK participation in an equivalent CU with the EU to encompass regulatory alignment for goods in sufficient depth to render the NI backstop unnecessary, would seem to offer a better prospect of securing both EU and UK parliamentary approval.

As Sam Lowe of the Centre for European Reform, noted back in July, in  Inching Towards Jersey, from the EU standpoint, such an arrangement would need to provide comfort to the EU that the UK would follow all the rules of:
• The customs union, single market rules for goods and the EU’s VAT regime. All industrial goods and agriculture would have to be covered to prevent checks on origin and standards, among other things, becoming necessary;
• State aid, industrial emissions and social and employment laws, to avoid the charge of environmental and social ‘dumping’.

Lowe further noted that it would need a surveillance mechanism, to check that the UK is complying with EU rules, a court to settle disputes between the EU and the UK that would have to take account of the case law of the European Court of Justice. The EU would insist upon a financial contribution to the economic development of central and eastern Europe, among other things.

Such an arrangement could allow the UK to pursue and sign FTA’s in services with third-party countries. It could also possibly be provided some flexibility on developing an independent migration policy – probably the most pertinent point in terms of selling it to MP’s who my be prepared to vote with the government, as well as the wider UK public-at-large. It would no longer be bound to the Common Agricultural and Fisheries Policy, thus addressing the concern of David Mundell, the Secretary of State for Scotland, who, in October warned that he would resign from the Cabinet if the UK was still subject to the Common Fisheries Policy when the next Scottish Holyrood elections next took place in 2021: a resignation that Mrs May cannot really withstand.It would allow the transition to be time-limited: the Political Declaration would simply confirm that both parties would apply best endeavours to negotiate, resolve, and finalise the arrangement prior to the expiry of the transition period. Overall, it could offer a model close but crucially distinct to the EEA,  particularly with respect to the addition of a CU so to ensure continuing frictionless trade in goods between the entire of the UK  and EU, rendering the NI backstop unnecessary or irrelevant in practice: one bespoke to the particular economic and political prevailing circumstances of the UK impacting upon on Brexit. As is required, of course.

In that light, if the national interest is the assessment criterion to be applied, this Chequers Mark 2 ‘Jersey’ option appears to represent the least damaging available Brexit option that can also politically sidestep the hiatus of No Deal by attracting  a sufficient number of MP’s to approve it. There would, however, be an economic downside in terms of loss of EU market access for services. In that regard,  while the importance of the financial sector to the UK economy and its public finances should not be under-stated, the sector is better-placed to withstand and adapt to such loss of access than most goods sectors are, with better distributional outcomes. An alternative Canada FTA would have similar or even worse impact. Better to remove the uncertainty now and support the export-oriented service sectors to get on protecting their existing EU business and to secure new and growing markets across the ROW.

The EU can be expected to insist that the NI backstop remains in the legally binding WA. Semantics is likely to come into play in cross-referencing it with the accompanying Political Declaration,  in terms of reconciling the ‘temporary’ with the ‘indefinite’. Both parties committing to the end outcome of no return to border infrastructure within Ireland as an inherent feature of any post-transition replacement must be central to that. Crucially, as noted above, and unlike the negotiation of a Canada-style replacement FTA, a bespoke CU+ regulatory alignment for goods arrangement covering the entire UK could be finalized within a time-limited transition.

The EU previously has underscored that the four freedoms underpinning the single market are inviolable and indivisible. Well, needs-must. The NI backstop on a smaller spatial scale showed that. A bigger prize beckons. The advantages to the EU of avoiding No Deal – with its economic and diplomatic known and unknown adverse consequences – and in securing a higher market share in services are salient to its balancing of the net advantages and disadvantages to its members of such a bespoke deal . Navigating the separation of services from goods in practical implementation terms is not unproblematic, but possible.

Across the Channel, Prime Minister May could offer this Chequers-Mark 2  as the ‘pragmatic’ and ‘principled’ best available deal that follows the thread of her the July 2017 Brexit White Paper  on establishing a sustainable free trade area in goods with the EU. One that within a realistic longer-term timescale could provide scope and opportunity for the UK to progressively identify and reap the most advantage of its altered and new relationship with Europe, in accordance with the result and spirit of the 2016 referendum vote.

Not only could the UK could forge new FTA’s concerning services with the ROW, it could also possibly allow the UK’s to progress FTAs concerning goods to the point where they could come into operation when the UK finally leaves the interim equivalent but still bespoke CU, where that is consistent with the NI backstop: that will be sometime in the indeterminate future, as always has the been the case. The actual prospect of independent deals – at least of the significance and scale needed to offset the loss of frictionless trade with our nearest and main partner, the EU, across the high value supply chains that are of particular economic importance to many communities in the north and midlands, was always to put it kindly, dim and distant, and unrealisable in the short-term, at least. The majority of MP’s appreciate that.

So such a Chequers Mark 2 deal could pass muster, at least on a two-thirds glass full basis, with enough Labour and Conservative MP’s to pass parliament. That, in turn, could create political space for  co-ordinated labour market and industrial strategies to be put in place on a sustainable basis that  can effectively upskill and provide more secure and better paid conditions for indigenous workers and young people., especially across the caring, construction, cleaning, hospitality, and other low wage and insecure, service sectors. If Brexit is to provide any lasting benefit to the UK economy and society that process needs to start now in earnest.

A Way Out of the Brexit Impasse

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The prime minister clearly hoped that her Chequers package could at least be sold to the warring factions in her own party. The swift resignations of her Foreign and Brexit secretaries soon put paid to that. The European Research Group (ERC) of hard-Brexiteers, led by Jacob Rees Mogg (JCM), were emboldened to openly rebel. The government then went on to accept amendments from him that seemingly contradicted the principles on which its and her own package was based.

That, in turn, prompted 12 Conservative Remainer MP’s to table an amendment of their own requiring the government to consider staying in the customs union if no EU agreement had not been reached by the end of January 2019 – their initial promise to give ‘a fair wind’ to the new approach blown away by May’s apparent craven capitulation.  It was defeated by a mere three votes, and then only after four Labour MP’s, including Frank Field, defied their own party’s three-line whip to vote with the government.

May’s decision, on the surface, puzzling.  She had earlier – at least according to some reports – advised Conservative Remainers to hold fire on their amendment and to wait for the EU to knock-back her then-forthcoming Chequers offer. She could have then told Parliament that the only way that to avoid either NI/Ireland border infrastructure or an Irish Sea border, as well as the maximum economic disruption of a disorderly exit, would be to accept, in effect, the UK staying in a CU equivalent to the existing one beyond the already-agreed two-year transition or implementation period slated to end in December 2020, where no tariffs or quotas or intrusive border ‘rules of origin’ checks would be needed, or levied, or conducted on goods travelling between the EU and UK. The UK would continue to levy, collect, and remit the EU’s applicable Common External Tariff (CET) on all goods imported into the UK from the rest of the world (ROW).

Such a position with government support could have been expected to pass Parliament given Labour Party support for the UK to remain a customs union.

Although Mrs. May had previously provided the Trade Secretary, Liam Fox, with personal assurances about his ability to sign independent trade deals with the ROW, that does not explain why the prime minister felt that it was necessary to capitulate to JRM and his ERG band of fundamentalist Brexiteers. Their two ‘wrecking’ amendments, covering VAT and the EU collection of tariffs on behalf of the UK, would have almost certainly been rejected by the Commons, had her government not accepted them.

Most likely, her motivation was to persuade potential rebels to desist from depositing enough letters of no confidence in her to trigger a summer leadership contest. Yet, by accepting JRM’s amendments, she served to strengthen their position and stiffen their intransigence against the Chequers package. Such appeasement has and will continue to undermine her future political negotiating positions, both internally with her party and externally with the EU, making her ouster as Conservative party leader and prime minister more likely than less.

Putting that political misstep aside, the yawning core contradiction at the heart of the entire Brexit process was inescapably and openly laid bare by Chequers: the economic damage that it entails can only be mitigated by the UK retaining as much of the tangible benefits of EU customs union and single market membership that it can. But that in return requires the UK to accept some of the obligations of EU membership along with an accompanying loss of domestic UK control over their content and of their future development: making the UK a rule-taker without representation.

If the point of leaving was to wrest wholly in practice and effect any EU direct control of ‘our money, laws, and borders’ back to Westminister, such a Brexit-in-Name only (BINO), as it is called by its detractors, seems, in logic at least, pointless: the UK might as well not leave. But that would be contrary to the June 2016 referendum result. On the other hand, exiting with no deal to trade on World trade Organisation (WTO) rules, as extolled by the ERG, would result in the most economically most damaging, and politically (and quite possibly socially) calamitous consequences: a conclusion disputed, or brushed away, only by most fervent Brexiteers.

As Parliament went into its summer recess, individual members of the ERC group – that could number between 60 and 100 MP’s in total – swore that they will vote against any future withdrawal deal aligned to the July Brexit White Paper, which fleshed out the Chequers package. The Labour party, on its part, confirmed that it will continue to oppose such a deal because it would not meet the – albeit unrealizable (short of continuing de facto CU and SM membership) – six ‘Starmer’ tests. And, the Conservative Remainers, alienated by May accepting the ERC amendments, were once again cast outside the government tent.

If the Labour Party and the ERG stick to their existing guns, any deal based on the white paper package will be rejected by Parliament later this autumn, thus shortening the political odds on a UK ‘no deal’ exit, occurring by default. That outcome is far from certain, however: a season is a very, very, long time in politics.

Neither a responsible government nor opposition could engineer, or even countenance, a no deal exit; that is unless they simply washed their hands of its known anticipated consequences on the national interest. Even if they did, many of the potential political ramifications or fall-out from such an outcome, either by design or default, are too unappealing, or too uncertain, for both main parties to stake their future electoral prospects on.

The looming prospect of ‘no deal’ itself could cause the EU, however, to modify or fudge its own previously declared red lines to accommodate a compromise deal with the May government that could then possibly garner the grudging acquiescence of Parliament. It is to that prospect, we turn.

The european dimension

The facilitated customs arrangement (FCA) provides the cornerstone of the UK negotiating position. It is designed to avoid the need for the NI backstop included in the draft withdrawal treaty. The other main pillar on which May’s package rests is UK regulatory alignment with the EU, but only to the extent necessary for the UK to continue to benefit from frictionless trade in goods with the EU27 and with no border infrastructure to be placed between the two Irelands.

That pitch jars with the mood-music coming from, not only from Barnier and the European Commission, but also from key political leaders, that has hitherto maintained the steady tune that the four freedoms of the single market – goods, services, capital, and people – are both inviolable and indivisible.

But as summer simmered in early August, some suggestions of a possible softening of the EU’s absolute position began to emerge. Thee separate treatment of goods and services could perhaps be countenanced, subject to the adoption of interpretation and enforcement mechanisms that would give the final say to its own institutions, most particularly the ECJ.

The EU and UK red-lines could both be blurred or fudged, by, for example, providing the European Free Trade Association (EFTA) court a similar role in deciding disputes that it currently  commands in the existing European Economic Association (EEA) governance structure.  That arrangement already involves Norway, for example, opting out of membership of the customs union, and the acceptance of some associated frictions in the free movement of goods.

Freedom of movement is the main elephant in the room for the UK, and some tweaking of its application could be creatively presented by both parties as part of a movement to a negotiated and  comprehensive replacement arrangements.

That the EU might be prepared to row back on its own stated negotiation red lines should not come as that much of a surprise. A no deal exit would cause one of its members, the Republic of Ireland, almost as much – or even – greater economic harm than it would wreck on the departing UK, whose domestic manufacturing and farming sectors would bear the brunt of the pain both immediately and longer-term. The EU’s other 26 members would also suffer some economic loss, most marked for the Benelux countries geographically closest to the UK.

A chaotic UK exit would put in jeopardy both the £40bn divorce payment and the residence rights of EU nationals working in the UK. At its most existential, the diplomatic credentials and reputation of the EU with the ROW would be soiled, perhaps permanently. The UK exit is a particular situation; at the end of the day: needs must.

Yet it is difficult to discern why the EU should allow the UK – a state that has chosen to leave its ‘club’ and become a non-member third-party –  the benefit of the  special customs arrangement represented by the FCA, while allowing the UK also to continue to benefit from FTA’s agreed between the EU and the ROW.

In particular, the proposed dual tariff structure of the FCA provides an inherent incentive to fraud and smuggling that along with its other added complexities and inefficiencies makes the prospect of its 27 remaining members suffering consequential trading and revenue, almost inevitable. That makes its adoption most unlikely as, https://www.asocialdemocraticfuture.org/2018-brexit-white-paper/, pointed out.

In that light, the EU should also do itself, as well as the UK, a favour by putting the FCA out of its misery as soon it can, without precipitating Mrs May out of office, although that might mean waiting until after the Conservative Party conference in October.

Brussels could then push the UK to maintain an equivalent CU with the EU until such time that a replacement FTA can be mutually agreed and put in place, as a ‘price’ for offering the UK some measure of flexibility on FOM. Of course, no real economic price would be paid by the UK by accepting de facto continuing membership of the CU. Its manufacturing businesses would benefit from the greater certainty of the maintenance of frictionless trade for a longer period; it is only the illusionary prospect of securing substantive new trade deals in goods outside the EU in the short-term that would be lost.

The real issue is whether the resulting political price for the government – and for Mrs May in particular – would be too high.

The domestic political dimension.

Any variant of the Chequers package is sure to be rejected by a sizeable segment of Conservative ERG members. But they set their face against the Brexit White Paper even in its July pristine published state. They, therefore, have already shot their bolt:  no deal is their unshakeable article of almost religious faith, whatever happens.

Mrs May can be expected to stand firm behind her Chequers banner and now face down their messianic zeal for a disorderly exit, relying on the silent majority of her more Brexit-agnostic MP’s to carry her through.

But if she does, could the ERG unseat her in the autumn? Possible but unlikely. Not only are the majority of Conservative MP’s not wedded to a hard-Brexit outcome, which even if they were, would not pass Parliament, but a new hard-Brexiteer Conservative leader would face another general election.   That precise same prospect is likely to deter Conservative MP’s from exposing both their party’s Brexit record and their divisions to a leadership contest and then to a volatile electorate.

That electorate could well vote in a ‘hard-left’ Labour government led by the populist Jeremy Corbyn, and trust it to negotiate a vague soft-Brexit aligned to Starmer’s six principles under a jobs and prosperity banner. A new Labour  government can be expected to seek an extended Article 50 timetable – a need that Labour would make clear during the election had been generated  by Tory incompetence and extremism.

Even if the Conservatives won, the ensuing chaos and economic damage caused by a disorderly exit would quite likely render it a short-lived victory that then made the party subsequently unelectable for a generation.

It is possible that the Conservatives,  if a leadership contest was forced onto Mrs May, would elect a compromise candidate, such as Jeremy Hunt or Sajid Javid, promising a harder line with Brussels in the negotiation,  but with no deal as the backstop rather than the desired destination. This assumes that the constituency members, who would decide such an election, would be amenable to any whiff of Brexit compromise. The deep Tory divisions would still be exposed by such a contest.

Some suggestion has been made that such a ‘compromise’ leader could oversee a UK exit according to a vague and skeleton withdrawal agreement and its accompanying political declaration minimally acceptable to the EU, before exiting in March, but then backtrack to a more hard-Brexit arrangement, presented as ‘what the people voted for in 2016’.

The EU, however, can be expected to include provisions within the withdrawal divorce treaty that would make that difficult. Nor could it be expected that Parliament would be fooled by such duplicity.

Turning to the Labour party, it might hope that a parliamentary vote rejecting any final package based on Chequers would also precipitate an election bringing it then to power. An election fought ‘on what happens next for Brexit’, however, is just as likely to expose Labour’s own Brexit fault-lines.  Its outcome could well prove to be another stalemate that second time around could also induce a splintering of existing party alignments. Its current leadership could well decide, in that light, that betting on the altar of Brexit the once-in the-lifetime opportunity to implement the socialist transformative programme, which is its main preoccupation, was not justified by the odds.

Some on the left, most notably Paul Mason, How Labour could unite the country have argued that Labour should complement its opposition to the Chequers package by publishing the single market and migration approach that, after getting the Article 50 exit date extended beyond March 2019,  as the new elected government it would progress with Brussels.  Labour should also promise the electorate  a second referendum on the final deal that it was then able to secure with the EU27.

This presupposes, of course, that Labour voting against the variant of Chequers package that is offered to Parliament would result in a general election and that sufficient time was left to extend Article 50. It is questionable whether a Corbyn-led government would wish to be distracted from its domestic transformative programme by such a second referendum and its connected complexities and uncertainties.

It is certainly unlikely that either the May government or the present Parliament will concede a second referendum.  Indeed, the cross-cutting complexities of the Brexit permutations are not amenable to a vote between binary alternatives, underscoring that the 2016 referendum was inappropriate in the first place: there was no precipitating new overarching ‘new destiny’ issue; party political management reasons rather led to it.

A second referendum offering Brexit multiple-options would be problematic in content – for example, see the permutations offered in https://infacts.org/theres-more-than-one-way-to-count-a-three-way-peoples-vote/  – and could well be indeterminate  in result, notwithstanding that this time round it would be billed the ‘People’s vote’. There is no simple solution to the complex problem of Brexit. Pretending otherwise is likely to cause more problems than solution.

Anything short of an astounding vote to Remain, would simply lay the ground for Leaver demands for yet another and a third vote, compounding divisions within and between the constituent countries of the UK to an even more dangerous tipping point.

A second referendum only really makes sense when framed between leaving with no deal, and extending Article 50 and staying in: leaving with no deal with its resulting economic and social damage, in that case could well come into ‘new destiny’ territory.  If the majority voted for no deal at least they would be doing so with their eyes wide open, taking, perhaps, the heroic assumption that the consequences of the choices are communicated clearly and transparently the second time round.

But, as argued above, defaulting to ‘no deal’ option should be avoided by a responsible government and opposition.

Can Parliament agree on a ‘least bad’ option?

It is both possible and mutually desirable for both the EU and UK  to negotiate a withdrawal treaty and accompanying political declaration exit that could be conceivably be accepted by the UK Parliament.

The UK would accept an equivalent CU and connected continuing harmonization to EU rules concerning goods infinitely after its formal exit from the EU, at least until alternative trading arrangements are thrashed out and finalised.

Such a Mark 2 Chequers agreement would resolve the NI backstop for the foreseeable future and preserve the continuing vital not-to-be-lost benefit of frictionless trade in goods to both parties.

From the EU standpoint, it would provide comfort that the UK would continue to align and conform to EU rules.  In return for the UK jettisoning the unworkable FCA, the EU could offer some wriggle space to the UK on FOM.  It could also allow the UK’s to progress FTAs concerning goods to the point where they could come into operation when the UK finally leaves the interim equivalent but still bespoke CU. In the meantime the UK could negotiate and enter into new service agreements with the ROW.

The prime minister could thus offer this the as the ‘pragmatic’ and ‘principled’ best available deal that will allow the UK to actually leave the EU at minimum net economic cost, while providing scope within a realistic timescale for Britain to progressively to identify and to reap the most advantage from its altered future relationship with Europe.

The ERG and other hard-Brexiteers, of course, would indict that to stay in the CU and SM indefinitely would make the UK a ‘vassal-state’ that will prevent it venturing out onto a world stage again as a buccaneering and proud free trading nation winning new trade deals on its own account. Their bawl that this would constitute a grass betrayal of the June 2016 democratic decision to leave the EU can already be heard.  They are going to continue to shout that whatever happens, short of securing their desired no deal exit. That outcome – like the continuing CU and partial SM membership arrangement proposed here, was not on the 2016 ballot paper, when 52% of those who voted, simply expressed to leave the EU in preference to remaining.

The sensible majority in Parliament – across the parties –  should simply rely on the facts to demolish the deluded and national interest-damaging hard-Brexit position. The actual prospect of independent deals – at least of the  significance and scale needed to offset the loss of frictionless trade with our nearest and main partner, the EU, is to put it kindly, dim and distant, whose horizon has always extended way beyond January 2021.

Paul Krugman analysis on why existing customs union is better than relying on alternative free trade deals, provides a concise expert summary of that common-sense reality. It already is reflected in the government’s own economic analyses of the expected impact of different Brexit alternatives. Other studies have highlighted the particular adverse impact on jobs and incomes across areas most dependent on manufacturing industry, often located in either Labour-voting or marginal constituencies,  most notably in the North-east, as described in more detail in previous posts, such as https://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/.

Of course, for Parliament to exercise its collective wisdom, the Labour leadership would need to be prepared at least to refrain from impose a three-line whip against such a Chequers Mark 2 withdrawal deal.

This it might do insofar that the government will have saved them the trouble of negotiating a deal with the EU that could and would not differ materially very much from what Labour could negotiate with Brussels. Voting it down to precipitate an election that would inevitably be dominated  by ‘what next for Brexit’ would very likely come across as self-serving; and rejecting a CU that would accord with current Labour party policy, which the majority of Labour MP’s are united in supporting – a unity that could shatter if attention shifted to the single market.

Other similar political calculations could also come into play.  Tory hard-Brexiteers  might well be joined by some ‘Lexiteer’ Labour MP’s; perhaps  some hard-Remain Labour MP’s committed to nothing short of a cancellation of Brexit or at least a second referendum could even join them in the ‘noes’ lobby, providing a potential silver lining to both Mrs May and Jeremy Corbyn, by isolating their respective hard-Brexit and Remainer detractors and plotters.

The prime minister could claim that she had delivered Brexit in accordance with the referendum mandate, while Labour could claim that they have secured a result far more worker and jobs-friendly than otherwise would have been the case.  Both leaderships would be served the national interest, while avoiding an election that risked the future break-up of their respective parties.

The balance of political risk would remain with Mrs May and her party. She would still have to withstand the venomous and destabilising attacks of the thwarted hard-Brexiteers who no doubt would strive to incite a rightwards-drifting rump membership to exert pressure on their MPs to ditch the prime minister.

If, on the other hand, she allowed the negotiations to drift to a point where a ‘no deal’ exit beckoned, the pressure for a second referendum to be called in time for such an outcome to be avoided, could become unstoppable.

 

 

 

2018 Brexit White Paper

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The December 2017 interim withdrawal agreement (the draft Article 50 divorce treaty) requires Northern Ireland (NI) – specifically – to stay in regulatory and customs alignment with the EU. This to avoid a hard border between the two Irelands, which is an accepted red line for both the EU and the UK.

It would, however, create a customs border in the Irish Sea, unless the UK continued to remain in the Customs Union (CU) and Single Market (SM) past the transitional period posited to end in December 2020. Both end-states have been consistently rejected by Mrs May. The horns of her dilemma are thus. To escape them, beginning with her Mansion House speech, she initiated a process involving the loosening of some-stated red lines, even if almost imperceptibly, such as conceding that continuing to participate in EU agencies will involve some measure of at least indirect European Court of Justice (ECJ) jurisdiction.

Her slogan that ‘Brexit means Brexit’ was displaced by a more nuanced approach that, in effect, simply recognized the inevitable: that any agreement would require from both sides some measure of pragmatism and compromise, not least from the UK, which would suffer the most from a disorderly ‘no deal’ exit.

At the same time, with the resignations of Damien Green and Amber Rudd, her erstwhile deputy and home secretary, respectively, she lost her ‘soft’ Brexit majority within the Cabinet Brexit sub-committee. As time ran out for the UK to present a coherent package of proposals to Brussels that could stand even the remotest chance of being progressed to agreement with the EU no later than December, she finally took the plunge and convened a Cabinet awayday at Chequers on the last day of June and provided it with a firm brief to agree and produce such a package.

That it duly did without too much apparent discord. Initial impressions, however, were deceptive, insofar that within three days, the prime minister’s Brexit and Foreign Secretary resigned. It soon became apparent that Mrs May will struggle to get any subsequent agreement based on the package – as formalized in a Brexit White Paper   (the white paper) published nearly a month later in mid-July –  through parliament, as hard-Brexiteer opposition on her backbenches to it  hardened.

The purpose of this post is to consider the details of her package as set out in the white paper in detail sufficient enough to allow any assessment to be made of its likely fate, with a particular focus on the Facilitated Customs Agreement (FCA).

The white paper outlines a future ‘economic partnership’ with the EU, including:
• A common rulebook for goods including agri-food limited to (the relevant rules) those necessary to provide for frictionless trade at the border (avoiding customs and other inspections);
• On-going UK harmonisation with such necessary and relevant EU rules, when approved by Parliament or by the devolved legislatures;
• Continuing participation by the UK in EU agencies that provide authorisations for goods in highly regulated sectors – namely, the European Chemicals Agency, the European Aviation Safety   Agency, and the European Medicines Agency – with the UK accepting their rules and contributing to their costs;
• The phased introduction of a new Facilitated Customs Arrangement (FCA) that would remove the need for customs checks and controls for goods traded between the UK and the EU as if they were within a combined and new customs territory, but where the UK could set its own tariffs for trade with the rest of the world (ROW);
• The negotiation of sector-specific arrangements for services and digital, providing regulatory freedom outside EU rules for the UK’s services-based economy;
• UK to be no longer bound to the Common Commercial Policy (CCP), the Common Agricultural Policy (CAP), and the Common Fisheries Policy;
• Freedom of movement (FOM) to end, to be replaced by a negotiated migration policy covering UK and EU nationals.

Trade in services, therefore, which accounts for over 80% of UK output, although less than half of its current exports, will no longer be subject to EU single market regulation. This, the government accepts, will involve ‘some’ loss of market access to the EU for the largest segment of the economy: it follows that net economic loss can only be avoided if that is offset by an increase in service exports to the ROW, noting that such service exports are not really constrained by EU membership at present.

The UK Parliament could post-exit refuse to implement new regulatory standards and requirements decided in Brussels pertaining to goods, but with the knowledge that adverse economic consequences could follow. That would make any such freedom, however, very much an unappealing Hobson’s choice: a yes, of course you are free to leave, but beware that you will need to dodge the bullets in the process type of choice.

More fundamentally, the separate treatment of goods and services that lies at the heart of the package, presupposes that the EU will concede the divisibility of its cherished four overarching freedoms of capital, goods, services, and people in an arrangement with a third-party (the UK) that has chosen to leave its club.

Leaving aside these first-order obstacles or issues, the actual design – as sketched out in the white paper – of the FCA appears to require a leap of faith on the part of the EU for it to be accepted, at least without substantive modification during the negotiation phase.  Such a process of modification will require May to further blur her red-lines, including a continuing role for  EJC jurisdictional oversight over the operation and interpretation of the agreed regulatory alignment, probably to the point of her accepting that it must continue in a binding form – regulated by processes that the EU can control – until alternative permanent arrangements can be agreed and put in force, perhaps many years down the road.

A dispassionate analysis indicates that the FCA cannot really run; yet the alternative prospect of ‘no deal’, however, could serve to concentrate minds on both sides of the Channel for sufficient fudge to be shovelled on it for a vague version of a withdrawal agreement and accompanying political declaration to be presented to parliament close to the wire.

Will the facilitated customs arrangement (FCA) fold of its own contradictions?
In June a Government technical note on a temporary customs arrangement, set out most of the government’s stall as to what the FCA would entail. On the insistence of David Davies, the then-Brexit secretary, this temporary arrangement was strictly time-limited to end no later than December 2021, after coming into force when the implementation (transition) period in December 2020, whereas the white paper, published in July after the Chequers agreement and Davis’s resignation, wisely avoided such prescriptive time-limiting.

Indeed, to suppose that a comprehensive Free Trade Agreement (FTA) or other ‘permanent customs arrangement’ replacement to the ‘temporary’ FCA could be negotiated and put in place by 2021 was incredible; based on the experience of the less ambitious Canadian CETA agreement with the EU, such a replacement could even exceed six years to finalise, although it can be expected that efforts will be made to shorten that gestation period. The white paper is also indeterminate on the relationship of the FCA to any future replacement arrangements. This, again, is sensible; these will only begin to take shape after the UK formally exits the EU.

The FCA is offered rather as a temporary arrangement that would prevent the need for a discriminatory and fragmentary NI backstop to come into play, once the transition period ends in 2021. The alternative of a border in the Irish Sea is, of course, unacceptable to both the UK government and parliament. It follows that the FCA cannot be strictly time-limited while it remains an interim arrangement put into place to avoid a hard NI border: it will need to remain in place until alternative replacements are agreed and put in place, whenever they are. The FCA would hardly be worth the candle, in any case, for either party, if it was to be the temporary short-lived arrangement that it sometimes touted to be.

In terms of the mechanics of how it will work, the FCA will replicate existing EU customs union (CU) processes to allow the UK to collect the full the correct EU common tariff (CET) for imported goods deemed destined for EU27 countries, before remitting it back to Brussels. Goods imported from non-EU (ROW) countries – but deemed for domestic consumption – would alternatively attract a UK-set dedicated domestic tariff (presumably lower than the CET tariff, in most cases).

The white paper expresses the hope that this dual-tariff combination would facilitate the greatest possible trade with the EU and the ROW. The flow of goods between the UK and EU, particularly those involving deep and inter-connected supply chains (engine made in Germany, gearbox in Italy, car in UK etc) would remain unimpeded. The UK, at the same time, would be freed to strike new independent trade deals.

It also supposes that the correct EU or UK tariff will be applied and paid ‘up-front’ ‘up to 96%’ of the time, reducing the need for non-EU imports to be either tracked within the UK and/or the tariff to be adjusted retrospectively, to just 4% of occasions.

Trade experts have already cautioned that this appears an optimistic hope that is not evidence-based. A forensic analysis by the UK Trade Observatory, for example,  Decoding the Facilitated Customs Arrangement , points out the stated or implicit assumptions that the white paper appears to rely upon to derive that figure, are heroic. Most notably, ‘trusted traders’ or Authorised Economic Operators (AEOs), as they will be known, will be responsible for the importation of  100% finished goods and of 81% of the remaining total of intermediate goods (those used as inputs into finished goods) imported from non-EU countries that, as such, will be subject to either the CET or the UK tariff when the transition periods ends in December 2020.

The EU CET tariff on finished or consumption goods, such as on foodstuffs, can be expected to be appreciably higher relative to what the UK will freshly set for imports from non-EU countries destined for domestic consumption once the FCA comes into operation as envisaged in January 2021.  A strong incentive would therefore exist where the UK duty was levied – especially where the imported goods in question could easily be broken down and distributed in small loads,  for them to be deemed as destined for domestic consumption or use and then  split up into smaller lots, once they enter into the UK jurisdiction area. They could then be trans-shipped to the EU, whether across the NI border or other UK borders with the EU, with the dishonest trader or other agent profiting form the difference between the domestic UK and EU tariff.

Some batches of intermediate goods could be also split up to evade correct payment of duty, for the same reason. In short, the existence of the dual-tariff will therefore tend to encourage agents of ROW countries to import goods and re-export to them to the EU via the UK to secure the benefit of a lower domestic tariff: the bigger the difference, the bigger the potential trading arbitrage profit, and the bigger the incentive to cheat.

The white paper’s implicit assumption that approved or trusted traders will never levy the wrong duty, whether that is due to commission, to negligence, to the dishonesty of other agents, or to simple error, preventing any  consequent loss of revenue to the EU –  or related loss of trading advantage to EU27 members, is, to say the least, implausible, therefore.  The EU chief negotiator, Michel Barnier,  in his initial public response to the white paper cites that precise real fear as shedding doubt on the workability and acceptability of  the FCA. That it would allow the UK, as a non-member third-party, to collect tariffs on behalf of EU outside its legal structures and purview, and that it would involve added bureaucracy and thus additional costs for the EU to monitor, was likewise cited.

Barnier also indicated that although agri-food and pesticide inspections will not need to be undertaken at the border (material to the NI border context, where border food and animal-based traffic is significant), they will still need to be subject to EU rules and regulation. This would appear to rule out any real progress on a replacement UK-US trade deal involving a departure from EU food standards. The scope for significant new trade deals with the ROW seems to be limited largely to services. And even these are likely to be limited in scope for a variety of reasons, including the unwillingness of potential partners, such as India, to grant greater service access to the UK in the absence of UK concessions, such as visa liberalisation for their nationals.

But, in any case, it remains unclear, however, why the EU should give the UK – a state that has chosen to leave its ‘club’ and become a non-member third-party – special customs arrangements that add complexity and associated scope for error and confusion, in a way that is contrary to the efficient operation of both its CET and CCP, while allowing that same country to continue to benefit from existing, and to retain an input into new, FTA’s agreed between the EU and the ROW.

With respect to the harmonization of future UK and EU rules to the extent that such harmonisation is necessary for continuing ‘frictionless’ trade in goods between the UK and EU to proceed consistent with the NI backstop, the EU can be expected, as a minimum, to insist on interpretation and enforcement mechanisms that give the final say to its own institutions, most particularly the ECJ, rather than rely on the proposed institutional joint-committee structure that the white paper proposes; to do otherwise would risk the UK diverging from EU rules to the detriment of its members’ interest,without adequate or timely recourse.

Besides, the mood-music coming from, not only from Barnier and the European Commission, but also from key political leaders, continues to march to the tune that the four freedoms of the single market – goods, services, capital, and people – are both inviolable and indivisible.

A trite and an obvious observation, perhaps, but something must give if deadlock and a disorderly UK exit is to be avoided. Exactly what will depend upon whether the respective EU and the Conservative government ‘red-lines’ remain inviolable in strict practice and, if not, the extent to which both are willing to fudge them – or allow them to be flexibly applied – to secure the wider end of putting a negotiated deal together that could be offered to the UK parliament with at least some prospect of success.

How can Starmer best combine Brexit tactics with strategy?

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On the 2nd March at the Mansion House (MH), the Prime Minister set out, at last, the government’s desired Brexit destination: a bespoke trade agreement with the EU more comprehensive in both its breadth of coverage (scope) and depth of market access, than any other  Free Trade Agreement (FTA) existing ‘elsewhere in the world’, including the EU-Canada Comprehensive Economic and Trade Agreement  (CETA) template, https://www.gov.uk/government/speeches/pm-speech-on-our-future-economic-partnership-with-the-european-union.

Soon afterwards, on the 19th March the draft EU-UK ‘where we are’ withdrawal agreement was published. It provided for a transitional period, although limited to 21 months with a December 2020 end-date. But a total negotiation period of barely two years simply makes no sense.  CETA took over six years to negotiate, even though it is both shallower and more limited in scope than the much more ambitious FTA that May seeks. A cliff edge now looms in 2020, rather than at the end of this year.

As the clock ticks towards formal exit and then to transition end the EU’s negotiating leverage will, unquestionably, strengthen. The earlier experience of Phase 1,  on its own, makes it a fairly safe bet that the EU’s negotiating guidelines, focused on the maintenance of the architecture of the single market and/or to an open Eire-NI border, will progressively and substantially prevail over the UK ‘red lines’ of taking back control of its migration, budget, and trade policy, all independent of European Court of Justice (ECJ) interference. That is unless the May government proceeded to take on board, essentially, the same existing CETA-FTA template that the prime minister ruled out as too limited in her MH speech.

The imposition of ‘rules of origin’ customs rules and of non-tariff barriers on both goods and services that are inevitable with a CETA-type FTA arrangement will inevitably increase trade frictions with resulting adverse impacts on production, income, and employment. A  UK Trade Observatory report, that modelled the particular impact of Brexit on the manufacturing sector, for instance, concluded that high-tech and medium-high tech sectors, such as car-making and aerospace, are most at risk of a decline in domestic production, with associated  losses of local employment, in Sunderland, across the West Midlands, as well as other local authority districts mainly concentrated in the North and the Midlands,http://blogs.sussex.ac.uk/uktpo/files/2018/02/Briefing-paper-16.pdf.

No-one can know or quantify the final damage of choosing an economically sub-optimal option, but the government’s own analysis of the economic impact of alternative Brexit options  on indicative UK aggregate growth, projects (taken as indication of the direction of travel, not a forecast)  that a FTA-type arrangement is likely to retard future GDP potential growth by  an estimated 4.8% to 2030 compared to that of 1.6%  if an European Economic Association (EEA)-type arrangement  membership was adopted: the ‘Norway’ option. But May in her MH speech also rejected that option, because it would mean accepting future EU directives as a rule-taker, continuing free movement (FOM), and ECJ jurisdiction; as she did continuing customs union (CU) membership in that case because it would mean accepting EU-set external tariff levels, thus preventing the UK embarking on an independent trade policy.

Alternative UK trade deals with the US, led by the mercurial and protectionist Trump, or with India, which will seek the lifting of UK visa restrictions, or with Japan, which has recently finalised a trade agreement with the EU, will take the UK years to negotiate; and, even if achieved, the available evidence converges on the conclusion that their subsequent benefits will prove largely illusory and negligible in comparison to the losses generated by disrupting the trade links and the complex integrated supply chains built up over decades with your closest neighbours. Common sense, rather than detailed economic modelling subject to uncertainty,  screams that simply is not sensible.

This cold reality makes the official Opposition and Starmer’s ambivalent position to the draft withdrawal agreement, which he gave an ambiguous and guarded welcome to, on the face of it, puzzling: in effect, tacitly or half-supporting  a government that is knowingly following a chosen process that will make not only Britain as a whole poorer, but which will leave some of its core voters reliant on manufacturing industry especially exposed to unemployment and reduced incomes.

But with Brexit, of course, politics trumps economics. In order to survive the government needs to keep the Democratic Unionists, the 60-odd diehard hard Brexiteers, and the 10-20 committed Remainers, all on board. Jacob Rees-Mogg, the standard-bearer of the hard Brexiteers has already declared the draft withdrawal agreement to be ‘unacceptable’ as it gives too much away,  and went on to link his grudging tactical acceptance of its current status to the implicit threat that ‘the final deal is the important one’, echoing the EU rhetoric that ‘nothing is agreed until everything is agreed’. Leading Remainers by tabling an amendment, back in February,  in support of continuing CU membership – which could well have passed, forced the government to postpone consideration of the relevant trade bill until such time that it can be sure of mustering the necessary parliamentary majority.

Labour, in turn, does not want to be painted as the party that disrespects the referendum vote and/or that undermines the negotiation position of a government that is actually ‘getting on with the job of delivering the people’s verdict’.  To do so could well lead to electoral punishment, insofar that the 2016 result was rooted more on social demographic-based culture and psychology than it was on economic cost-benefit analysis. The opposition’s comfort zone is to sit back and to leave the government squirming in their own Tory-created mess, rather than taking a definite alternative position, such as continued membership of both the CU and SM, which could then open-up the opportunity for the government to turn the spotlight towards them.

And Team Corbyn certainly does not want to come into power facing the continuing distraction of negotiating Brexit; it would much prefer the government to do the heavy lifting itself and then take the electoral consequences of negotiating a deal that Labour could then claim with evidenced justification will cost jobs for the sake of illusory freedom of the UK being able to negotiate its own trade deals.  After all, promoting the SM is neither a socialist clarion call nor an electoral vote-winner, when a third of Labour voters supported Brexit back in 2016, and which some Labour MP’s representing Brexit-voting constituencies might themselves reject.

Starmer, last year, set six tests in order to assess the acceptability or not of any Brexit deal in a future parliamentary vote. Their cornerstone is the second test that it should ‘offer the “exact same benefits” as the UK currently enjoys as members of the Single Market and Customs Union’. In a speech this March,  he reaffirmed that Labour’s  commitment ‘to negotiate’ a new comprehensive UK-EU Customs Union, alongside a strong new relationship with the SM that must include ‘full access to European markets with no new impediments to trade and no drop in existing rights, standards and protections’. He also outlined two amendments to the EU Withdrawal Bill that Labour intended to progress. One would prevent checks, controls or physical infrastructure of any kind at the NI/Eire border. The other – should the government’s proposed article 50 deal be defeated –  would insert a statutory provision requiring the government ‘to proceed on terms agreed by Parliament at the time, if necessary’, https://labourlist.org/2018/03/we-need-a-new-and-credible-approach-to-brexit-keir-starmers-full-speech/.

Is Starmer’s approach just tactically opportunistic or is it canny political management of a raft of complex interlocking issues that could in the end achieve the national interest by ultimately minimising the economic damage connected with Brexit, or by creating the conditions conducive for it to be to cancelled through a second referendum?

His demand, parroting David Davis (DD), that any deal should ‘offer the “exact same benefits” ‘ as the SM and CU, of course, is impossibilist, short of staying in both. Clearly designed to embarrass the government and DD in particular, it is made even though Labour shies away from advancing the outcome – other than cancelling Brexit altogether – that is most consistent with the passing of his own second test:  that is continued de facto UK membership of both the CU and SM; the position that many Remainer Labour MP’s want the party to adopt.

Starmer’s amendments to pass require the support of at least 12 Remainer Conservatives. They will almost certainly not lend support to Labour amendments directed against their own government that are designed to embarrass or to bring it down, in contrast to using their potential voting power, if and when with Labour support, as a means of internal influence with May to secure the least damaging Brexit. Defining amendments that are aimed squarely at the government’s weakest points and which potentially could command a parliamentary majority does, however, add pressure on the government to come back to Parliament for article 50 approval with a package more aligned to a progressively softer Brexit outcome. Providing Parliament with the power to guide negotiations subsequent to a failed article 50 vote,  in effect, would strip the authority of the government and would likely result in a stalemate, possibly conducive to a second referendum or a postponement of the Article 50 exit date.

That is why the government will, in all likelihood, use its best endeavours to fudge and kick the can down the road in order to avoid a political crunch point where they could lose a key vote in Parliament.

Successive iterations of an evolving framework of a deal that could allow it to claim that the UK has ‘taken back control’, even if in semblance, rather than practical practice, can be expected. In practical terms that would mean at the end of the day the UK progressively ceding the substance of the EU negotiating guidelines, either by accepting  diminished market access or by loosening its other red lines, such as conceding ever-widening areas where the ECJ retains jurisdiction in return for better market access : an Emily Thornberry ‘blah-blah-blah’ or ‘fudge’ line of least resistance deal could well be cooking in the Cabinet Office kitchen.

The mutual need of the EU/UK to avoid the UK being left with a Hobson’s Choice of either a politically unacceptable deal or of falling down a 2020 cliff edge, in any case, means that the prospect of an extension to the transitional period, during which the UK will have to accept as a rule-taker Single Market (SM) and Customs Union (CU) obligations and continuing budget contributions, is already looming on the horizon. In that light, even a pro-Brexit organisation, such as the Institute of Economic Affairs, recognise at least the possible benefits of  remaining in a modified customs union until after March 2019, https://iea.org.uk/publications/the-uk-can-do-better-than-the-eus-customs-union/.

Such a ‘fudge’ deal is consistent with the Article 50 ‘meaningful’  vote actually turning into one where MP’s are asked, rather, to accept an outlines of a deal on the basis of aims and objectives not commitments, focused on the principle of EU exit, rather than its detail or consequences, and one which will still lead to economically sub-optimal outcomes. The danger of such a ‘fudge’ approach for a government facing the milestones of  a March 2019 Article 50 EU exit, a 21 month subsequent transitional period ending in December 2020 – if not extended, and a Spring 2022 general election, is that the hard Brexiteers seeking their ‘real’ Brexit could still precipitate a leadership contest in the intervening period between the EU exit date and the next election.

May, no doubt is banking that the fear of such a decisive leadership election that could then lead to a premature election that could then, in turn, put Corbyn in 10 Downing Street, will prove enough to keep both the hard Brexiteers and Remainer factions on board, however reluctantly. On the other hand, her interests are aligned to Team Corbyn to the extent that both want Brexit put to bed prior to a 2022 election. The unknown is just how much ‘fudge’ the two different factions will respectively tolerate before rebelling.

But her more immediate problem is that the NI border issue will prove impossible to fudge given the Phase 1 agreement and her own commitment to no hard NI border. Most commentators concur that the government’s negotiating alternatives of ‘a’ new customs ‘agreement or ‘partnership’ will either not be accepted by the EU or realistically cannot be put in place by 2021. The UK has, in effect, therefore, committed NI to remain part of the CU and SM but rejecting that for the UK as the whole, and the logical corollary of such a combined position: a post-2020 EU-UK Irish Sea border.

Avoiding a hard NI border and Starmer’s second test alone requires him to seek and secure effective common ground with Conservative Remainers in support of a parliamentary commitment to an ‘equivalent’ CU arrangement. This would need to avoid ‘rules of origin’ impediments to frictionless trade and to ensure that future EU trade deals continue to apply to the UK.

By  requiring the UK to adhere to the EU’s external tariff wall,  it would rule out an independent UK trade policy, at least with respect to goods. But an independent UK  trade policy is a chimera, as was discussed above.  Nor is it likely that the UK would wish to introduce reduced or nil tariff trade with non-EU countries without reciprocal benefits accorded in return within bilateral FTA’s.

Such an equivalent CU could possibly be combined with UK participation in a hybrid-EEA arrangement, where the UK would, in effect, opt-in desired industries or sector to the SM,  and be ‘docked’ to the European Free Trade Association (EFTA) Court for jurisdictional purposes, for example, with reference to the interpretation and compliance of the Withdrawal Agreement. Some Conservative commentators have noted that May’s ‘pick-and-match’ aims in terms of maximising market access would be more likely achieved by such an arrangement, as it is based on existing EU precedent, and that it is an option that many Conservative MP’s are interested in, for instance,  https://www.telegraph.co.uk/politics/2018/03/25/creative-brexit-compromise-neither-leavers-nor-remainers-can/.

Indeed, the most recent, and internally contested, the House of Commons Select Committee on the The Future of the UK-EU relationship,  narrowly passed an amendment proposed by a Conservative MP, Richard Graham, that should the negotiations on a deep and special partnership not prove successful, in effect, the ‘Norway’ option, EFTA/EEA membership, remains as an alternative that would offer the advantage of continuity of access for UK services, as well, https://publications.parliament.uk/pa/cm201719/cmselect/cmexeu/935/935.pdf.

But EEA/EFTA membership, by itself, would not adequately address the NI/Eire open border issue: remaining outside an equivalent CU would mean that the resulting rules of origin checks on goods would require some sort of border infrastructure there.

Crucially, taking the needed full cognisance of the NI/Eire open border imperative requires  – at the very least – a combined hybrid EFTA/EEA/equivalent CU – hybrid, due to the exclusion of services. This would avoid the frictions connected to the imposition of non-tariff barriers on goods caused by being outside the SM, and to rules of origin checks caused by being outside the CU. Both, otherwise, will almost certainly stymie an open border.

Remaining in the SM for goods would also render the need to secure mutual recognition agreements relating to standards – which are almost certainly unlikely to be forthcoming within CETA++, unnecessary.  It could allow the UK to negotiate its own trade deals for services, and fisheries,  to avoid direct ECJ jurisdiction, and to possibly provide it with some wriggle room on migration, if the EU was so minded.

In effect such an arrangement would be a Norway-minus (services not covered)- plus (supplemented by an equivalent CU) arrangement, customised to the UK’s status as a major trading partner of the EU. It would need to include farm products as they constitute an important component of the movement of goods between NI/and Eire.

Certainly it would offer a better prospect than would CETA++: indeed, on the face of it, the only means of avoiding a hard NI border. The treatment of any goods, such as fish, carved out of the arrangement, as well as border controls on people, would remain to be resolved, however.

And, insofar that the UK participation in an equivalent CU appears to be a necessity in terms of avoiding a hard NI border and that EFTA is a free trade association outside the CU,  UK membership of both appears to be a contradiction: one that, at least to a lay observer, calls for consideration and resolution.

That said, politically,  Labour could take the initiative and signal that it would support an Article 50 deal along such lines, presenting it as ‘workers’ Brexit, but in a way best tailored to secure the needed support of Conservative Remainers.  Timing issues arise, however. Given that CETA-type arrangement is incompatible with both an open NI border and with May’s current partial opt-in approach to EU rules for UK industries most integrated to European supply chains,  Labour could just wait for growing pressure from her own MP’s to shift towards an alternative negotiation hybrid EFTA/EEA/equivalent CU negotiation template.

An Article 50 vote on an evolving withdrawal framework that fudges or clouds the reality of that incompatibility could, however, postpone that point of reckoning too far down the road. As was noted above, the practicalities and feasibility of a combined hybrid EFTA/EEA/equivalent CU requires focused consideration in order for it to properly and successfully presented and pursued with the EU. Political attention on the desirability of  the UK shifting to a combined hybrid EFTA/EEA/equivalent CU in comparison to CETA++ needs to crystallise, before the moment has passed.

Therefore, at the earliest opportune time, Labour should prioritise the facilitation of amendments across the floor that would ensure the establishment of an equivalent CU that would avoid damaging the same integrated supply chains, as May in her MH speech noted, that UK industries depend upon as well as a politically unacceptable Northern Ireland border, as was argued in https://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/. For that reason, the  acceptance of principle of an equivalent CU should precede or accompany that of hybrid EEA membership.  Remainers across the parties could then unite to push the government to move along a road towards de facto EEA membership that will cause the minimal economic and social damage. At the same time, it would not involve a Labour commitment to full SM membership and hence free movement.

 

 

Could a future partial customs union (CU) on Turkey model be part of a Norway-Plus UK deal?

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The Institute of Directors (IOD) new policy paper, https://www.iod.com/Portals/0/PDFs/Campaigns%20and%20Reports/Europe%20and%20trade/IoD-Customising-Brexit.pdf?ver=2018-02-15-083137-800, advances the case for a new bespoke partial customs union. It would allow tariff-free and frictionless trade in manufactured products and in processed agricultural products, but raw primary agricultural produce would be excluded from the arrangement.

Such a partial arrangement, the IOD argues, would lift the threat that the UK manufacturing firms will face costly ‘rules of origin’ requirements when the UK exits the CU on Brexit day – rules that would impact particularly across the manufactured product sectors. But, at the same time, it would provide scope for the UK to forge its own trade policy by seeking free trade deals with non-EU countries across other areas, most notably allowing the the UK to lower or remove tariffs on raw agricultural products from the world’s poorest countries.

The example of Turkey, which is currently part of a partial customs union with the EU that excludes agriculture, and, as it is outside the single market (SM), services, is highlighted as a possible model.

Such a bespoke partial customs union arrangement, similarly to a Norway-Plus arrangement, would involve a UK departure from the Common Agricultural and Fisheries Policies.

The IOD proposal, however, appears to accept SM exit without considering many of the inter-relationships between a CU and the SM.  While the UK could could commit to continuing regulatory alignment for manufactured and processed agricultural goods, but that would still leave open the question on how movement of people between N.Ireland and the rest of UK could be handled given a combination of UK repudiation of SM free movement of people and an open Eire/N.Ireland border; nor does it address  the rule-taker problem of having to accept EU regulations without the UK having a formal say in their construction and implementation.

Nor is the economic and social impact of removing or lowering agricultural tariffs on the the domestic agricultural sector modeled or discussed. Most significantly, perhaps, is that the incompatibility of agricultural tariffs with an open NI-Eire border is not addressed.

Another problem is that Turkey is a rule-taker in that it has no say on trade deals that the EU makes with third party countries, and does not benefit from reduced tariffs made under such deals.  Such a partial customs union could possibly be complemented by a wide-ranging parallel free trade agreement with the EU across such areas not covered in the partial bespoke CU new agreement, however.

Soubry’s Norway-plus approach

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The case that Labour should support any amendments that sought to maintain de facto customs union (CU) membership infinitely – at least until an improved and sustainable alternative emerges was made in https://www.asocialdemocraticfuture.org/time-labour-protect-national-interest-voting-cu/ .

Certainly if the UK government does not present very soon a coherent picture of its desired Brexit end-state, Barnier on behalf of the EU will simply begin to impose on the UK a settlement that is consistent with the legally-binding phase 1 agreement.

The Phase 1 agreement made it inevitable that the UK maintains a mutually agreed de facto CU with the EU during any transition period. Regulatory alignment and the avoidance of immigration checks along either the Eire/NI or between the NI and the rest of the UK, seems also to suggest an arrangement very close to continuing de facto single market (SM) membership.

The current efforts of the Conservative MP, Anna Soubry, to marshal cross-party support for a European Economic Association/ European Free Trade Association (EEA/EFTA) + CU (Norway-plus) option are consistent with UK adherence to that Phase 1 agreement.She highlights other selling points of such an approach, apparently directed at ‘leaver-lites’.

First, such a Norway-plus option would still allow the UK to exit the Common Agricultural and Fisheries Policies, membership of which has increased prices for UK consumers, while the latter  has hastened the decline of Britain’s fishing industry.

Second, it would possibly allow some wriggle room to escape direct European Court of Justice (ECJ) jurisdiction – through the EFTA Court and associated treaty provisions.

Third, the SM freedom of movement (FOM) requirement could possibly be combined with some measure of immigration control based on work permits.

Fourth, the UK could possibly seek to negotiate alternative trade deals as a EFTA member.

These claims are contestable in terms of EU acceptance, while their actual potential relevance in practice could well be thwarted by the weight of complexity and trade offs involved in, for example renegotiating fisheries with the EU.

And what Soubry and colleagues have also not clarified is whether Norway-plus would just be a transition to another end state, and if so for long that it would apply. This is material, as neither the EEA nor EFTA were envisaged as transitional arrangements for a country on a journey to somewhere else, although there is always a possible first time for everything.

If Norway-plus operated as a two year transition, the UK would still face a cliff edge in 2021 when that ended, as it would not be possible for the UK to negotiate alternative trade deals within that period, implying a much longer time period that it would need to operate.

In any case it remains unclear how many Conservative MP’s are prepared to sign up to support to such a position, which, in effect, commits the government to the softest brexit. Perhaps the threat of revolt is being used to force May to formally align with the Phase 1 agreement that it signed only last December.

Across the benches, it is perhaps understandable that the Labour front bench continues to be cautious in taking the lead in trying to force the government to face up the inevitability of de facto staying in the CU and SM, for fear of providing political space to May to paint Labour as the referendum-reversing party: safer instead to act as to bystanders to a mess created and made worse by the Conservatives, and wait for its consequences to unravel, without risking splits within its own ranks by imposing three line whip, which some Labour Brexiteers might well then defy.

Although it is inevitable that the government’s position will unravel, less clear is precisely when it will.

Yet the national interest and the particular economic interests of those of the ‘left-behinds’ located in brexit-voting constituencies, such as Sunderland, demand that Labour discharges its responsibility as the official opposition, and steps up, not only to hold the government to account for its backtracking from the Phase 1 agreement, but in order to require the government to adhere to it, while offering them a compelling vision of a post-brexit UK.

Time for Labour to protect both the national and its own interest by voting for continued Customs Union membership

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Two Conservative MPs — Anna Soubry and Ken Clarke – were reported last week to be seeking cross-party support for keeping intact the UK’s current customs arrangements with the European Union (EU) in amendments that they intend to table for a vote by Parliament at the end of this month.

The former has also indicated that in the event of the displacement of Theresa May by a leadership triumvirate of Rees-Mogg, Gove, and Johnson that she would jump the Conservative ship to an alternative – albeit – undefined party.

A political window of opportunity, accordingly, appears to beckon for Labour. But, it should, in any case, make every possible effort to secure the passing of any such amendments. The national interest demands that HM Government’s loyal opposition spotlights the confusion, drift, and downright contradictions that continue to swirl unresolved within the current conservative brexit approach, which can hardly be called a policy or a strategy.

A January 2018 economic analysis produced by the government’s own economists (that it does not trust us to read) has been widely reported as forecasting that any form of brexit would depress UK GDP over the next fifteen years. A disorderly one, where we reverted to World Trade Organisation (WTO) rules in 2019 would have the most adverse outcome at eight per cent of GDP. A Canada-style Free Trade Agreement (FTA) would lead to a five per cent drop. Even the ‘softest’ exit option of continued UK membership of the European Economic Association (EEA), involving continued single market (SM) access, would still induce a two per cent drop.

Those MPs allowed to read it have relayed back that increased government borrowing of £20bn by 2033 is forecast under the EEA model, £55bn under a Canada FTA, and £80bn under the WTO, options.

Essentially, possible forecast gains secured from alternative trade deals with the US, Japan, and India were modelled lie at best in the 0.4% to 0.8% range, over the entire 15 year forecast period: negligible, in comparison.

It is not impossible that these forecasts could be belied if the UK, freed from the shackles of EU membership, became a buccaneering free trade partner within a future global trading environment that bestowed most of its favours on countries negotiating bespoke trade agreements outside wider international arrangements or customs unions, but pigs may fly. Here and now common sense screams that disrupting trade links and complex integrated supply chains with your closest neighbours whom you have shared a deepening single market for decades, simply is not sensible.

Alternative free trade deals with countries, such as the US – led by the mercurial and protectionist Trump, or with India, which will seek the lifting of UK visa restrictions, or Japan, which has recently finalised a trade agreement with the EU, will take the UK years to negotiate; even if achieved, the available evidence converges on the conclusion that the posited benefits to the UK of such agreements will prove largely illusory and limited, and that they will fail to offset the loss of a large slice of the ‘gravity-based’ gains currently secured through frictionless trade with our EU neighbours within a long established regional trading bloc.

A study published earlier this month that modelled the particular impact of brexit on the manufacturing sector, for instance, concluded that high-tech and medium-high tech sectors, such as car-making and aerospace, are most at risk of a decline in domestic production. Such losses are associated with a possible employment loss in excess of 1,000, in Sunderland, in Birmingham, in Coventry, in Derby,as well as the Cheshire East, Solihull and County Durham, local authority districts, http://blogs.sussex.ac.uk/uktpo/files/2018/02/Briefing-paper-16.pdf.

As to the question as to whether the UK signing new trade deals could compensate for the loss of market access and the EU, its modelling of an even a ‘best-case’ scenario, in which the UK leaves the EU without a deal, but signs FTAs with all other countries in the world (the pigs might fly option?), suggests that even such universal FTAs would not fully mitigate the brexit-related loss of trade with the EU.

The balance of risk, as is currently discernible from reasonable analysis and observation, is towards the downside that the economic impact of brexit will prove to be more severe than is currently modelled.

Maintaining de facto CU membership infinitely until an improved alternative and sustainable alternative emerges would, therefore, accord with Labour’s EU negotiating red lines, concerning economic and employment outcomes. It should help to mitigate the adverse economic consequences of brexit across the regional economies most dependent on manufacturing, such as the North-east and the West Midlands, that also provide large swathes of its actual and potential vote amongst the ‘left-behinds’ – the group that is likely to suffer the most from brexit. At the same time such a stance should help to solidify Remainer support for Labour.

What is then stopping Labour? That is not wholly clear; clearly its front-bench does not wish to appear to disrespect the referendum vote, at least until the climate of opinion demonstrably changes, fearing further loss of its core vote in brexit-voting constituencies.

Some also suggest that both Corbyn and McDonnell, want a complete UK rupture from the CU and SM, in order to remove future impediments to Labour implementing an interventionist industrial strategy. Such impediments are, however, based on perception rather than reality, as a recent publication by Labour MPS, Heidi Alexander and Catherine West, and others, explain cogently with particular reference to relevant parts of the party’s 2017 manifesto in:
https://d3n8a8pro7vhmx.cloudfront.net/in/pages/14074/attachments/original/1517224151/lexit_paper_finalONLINE.pdf?1517224151.

Labour should support the Soubry-Clarke amendments, or otherwise table its own, requiring the government to include continued CU membership within its EU negotiating position, which due to its own internal divisions  it cannot settle. Time before the EU seeks to impose its own terms is now rapidly running out.

By doing so, Labour could make a clear case in the general national interest, as well as in the particular interests of voters in brexit-voting constituencies, that a cliff-edge exit from the CU, either in 2019 or 2021, would certainly cause unnecessary, deep, and quite possibly catastrophic, economic and social damage.

The public finances would be consequently weakened, thus constraining further the fiscal capability of any future government to invest in the health, education, and health infrastructure, most needed by the ‘left behinds’.

The official opposition needs to hammer home the reality that May’s espousal of a deep, special, and comprehensive bespoke replacement FTA with EU cannot possibly be negotiated by 2021.

Another core reality is that the Phase 1 agreement on the Eire/N.Ireland border assumes continuing de facto CU membership, as well as continuing regulatory alignment. In that particular light, already the EU is taking contingency steps to enforce the December 2017 Phase 1 agreement in the event of UK backtracking and/or a disorderly exit.

Advancing such amendments would also offer a platform for Labour to develop its strategy to actually extend opportunities to the ‘left-behinds’ in terms of industrial policy, affordable housing, training and apprenticeships, and for general education advance.

What it would not do is to signal a Labour-led overturning of the EU referendum result. In fact, the contrary, insofar that the prospect of a disorderly exit or one imposed on the EU’s own terms, would most likely result in pressure for that vote to be revisited given the resulting damage to Britain’s economic and social fabric.

Continuing CU membership is different to continuing SM membership with its four freedoms, including freedom of movement (FOM), although there is overlap, as discussed in: https://www.asocialdemocraticfuture.org/can-uk-long-term-stay-cu-outside-sm/.

A concerted and focused Labour intervention could well  be effective. A position whipped across the Labour benches attracting sufficient support from Remainer conservatives and other parties is likely to force May to crystallise more clearly the government’s position in favour of continued CU membership, in the face of a potential fatal loss of support from the NI Unionists, as well as from her own Remain wing.

The Brexiteers should they choose to sought to reverse any such concessions through setting in train a leadership challenge would risk precipitating a general election.

To duck this challenge would be a dereliction of duty by Labour, in respect of both its actual position as the official opposition and of its purported one of safeguarding and protecting the interests of the disadvantaged in society. It will not be forgotten by future generations.

Can the UK long term stay in a CU outside the SM?

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The Confederation of British Industry (CBI) through its director-general has indicated that it considers that long-term continuing membership of the customs union (CU) is in accord with UK economic interests, even though continuing CU membership would appear to preclude the UK from negotiating bespoke trade deals with third party countries outside the EU.

It is indeed doubtful that future gains actually realisable from any such future deals would offset the economic costs of the UK losing the advantages of SM membership, given the concentration of trade that the UK has with its european neighbours.

Certainly it is difficult to see how a hard border between Eire and N.Ireland could be avoided – a key plank of the brexit stage 1 agreement between the UK and EU – if the UK exits the CU.

But is it really possible for the UK to continue in the CU indefinitely, while in parallel disengaging from the the obligations and processes of the single market(SM)?

Cutting a complex and uncertain reality to its essentials, post-brexit UK regulatory autonomy appears inconsistent with it maintaining regulatory alignment with the EU.

In the absence of such alignment, it highly doubtful that ‘frictionless’ trading of both goods and services can be maintained even if the UK retains some sort of de facto CU membership.

The UK could offer to continue to ensure such regulatory compliance through domestic regulations and processes. But there would need to some assurance assurance and compliance system that would satisfy EU SM requirements, that would appear, inevitably, to involve continuing ECJ oversight or something comparable, at least well into the medium term.

Yet both the May government the Labour leadership appear still appear to seek bespoke bilateral arrangements where the UK could continue to secure the advantages of SM membership, while jettisoning perceived accompanying unwelcome requirements, including free movement, ECJ jurisdiction, and in the case of Corbyn, restrictions on state aid.

But the French President, Macron, has recently made it clear again that continuing UK access to the single market, including its financial services, requires the UK to continue to contribute to the EU budget and to acknowledge European jurisdiction, as well as honour free freedom of movement of labour and capital, if it wishes to continue to benefit from the free and frictionless movement of goods and services.

He also did hint that that some bespoke tweaks relating to how UK adherence to SM requirements could be interpreted or portrayed might possibly be on the table (one example could be on how EU oversight of UK regulatory compliance is defined), while reiterating that no fundamental breach to the institutional SM architecture would be entertained.

The UK tactical bet seems to be that the attractions and importance of the UK as a trading partner will trump the determination of the EU
to conserve the complete integrity of the SM and its rules during this year’s negotiations. That appears wishful thinking.

Such a misguided approach detracts from a UK negotiating position that is best capable of maximising UK benefit from a least economically damaging settlement.

Corbyn and the single market

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This week the leader of the Labour Party appeared to rule out any continuing UK de facto membership of the single market (SM) because it would prevent a future Labour government re-nationalising the railways, the water and electricity utilities, and the Royal Mail.

Corbyn appears also concerned that continuing UK involvement in the SM would likewise prevent the provision of selective state assistance or aid as part of a more interventionist industrial policy. This could possibly involve a state investment bank taking equity stakes in firms or supporting research and development expenditures, especially across new technology and medical research areas.

The detail of these plans, which were outlined in its 2017 GE manifesto , however, remain hazy, particularly with in connection with how will be financed without undermining confidence in the public finances.

Each element requires focused and objective debate and scrutiny measured against strategic social democratic ends. That requires potential and likely gains to be balanced against realistically-assessed costs. Otherwise Labour will risk being portrayed – not only by the Tories, but also by responsible and informed elements of the mainstream media, as economically naive, at best.

Crucially it is doubtful whether most – if not all – of Labour’s proposals will infringe current EU state aid rules, as discussed in , and https://d3n8a8pro7vhmx.cloudfront.net/in/pages/14074/attachments/original/1517224151/lexit_paper_finalONLINE.pdf?1517224151.

It is perplexing that at this crucial juncture in the brexit negotiation process that the leader of the opposition party is resurrecting a particular historic and ingrained left-wing concern about EU membership that is not informed by the actual underlying situation.

This is at a time when Labour needs to crystallise its brexit position in tune with the national interest, in order to effectively challenge and expose the government’s self deluding ‘let us have cake and eat it’ approach to the impending stage 2 negotiations.