What’s wrong with the WTO Option?

Monday 13 March 2017  

Updated version

The WTO Option is an approach to Brexit much favoured by some groupings. It is an approach where the UK leaves the EU without having negotiated any trade agreements with the EU, either within the framework of Article 50 negotiations, or on the margins. Instead, it relies entirely on multilateral WTO agreements covering trade-related matters.

The general thrust of the WTO Option argument is that: "Were the UK to leave the EU, it would continue to have access to the EU's markets, as World Trade Organisation rules prevent the EU from imposing unfair, punitive tariffs on UK exports". In reality, the WTO rules only afford very limited protection against discrimination, and then only in respect of tariffs - which are no longer central to trade matters.

As the WTO site itself says, "by their very nature RTAs (Regional Trade Agreements — as is the EU) are discriminatory", and, under WTO rules, an amount of discrimination against third countries (and that would include the UK) is permitted. The WTO observes:

Modern RTAs, and not exclusively those linking the most developed economies, tend to go far beyond tariff-cutting exercises. They provide for increasingly complex regulations governing intra-trade (e.g. with respect to standards, safeguard provisions, customs administration, etc.) and they often also provide for a preferential regulatory framework for mutual services trade. The most sophisticated RTAs go beyond traditional trade policy mechanisms, to include regional rules on investment, competition, environment and labour.

The crunch issue here is the "preferential regulatory framework". Unless goods seeking entrance to the EU Single Market (i.e. British exports) conform to the regulations which comprise the framework, they are not permitted entry. Thus, the assertion that, if the UK left the EU, "it would continue to have access to the EU's markets …", is simply not true. And ,  to spell it out,  if it's not true, it's false.

With or without tariff issues being resolved ,  which are actually irrelevant to the access issue , the claim is false. Tariffs do not prevent access to a market. They simply impose a tax on entry. The actual barrier is the regulatory conformity,  what is known generally as a non-tariff barrier (NTB) or, sometimes, as technical barrier to trade (TBT).

Nevertheless, it is generally recognised that, in order to access the Single Market, goods must comply with EU rules. Conformity is the way of overcoming the NTB. But what advocates of the WTO option have not realised is that there is more to it than that . Much more. Potential exporters not only have to ensure their goods conform, they must provide evidence of their so doing. This requires putting the goods through a recognised system of what is known as "conformity assessment".

We are at this point entering serious nerd territory. If your eyes are beginning to glaze over, all we can say is welcome to the world as it really is. It has taken years of mind-numbing, tedious study to understand this amount of detail, and either you know it, or you don't. If you don't, you are going to make serious mistakes. And that is just what the WTO Option advocates have done. In a moment we’ll see why their mistakes are not so much serious as catastrophic.

And, for all that, the fundamentals are quite simple. The point about the Single Market is that border checks have been eliminated. The common rules are monitored by relevant national authorities and there is mutual recognition of standards. Thus, if you so desire, you can load a truck with grommets in Glasgow and ship them all the way to Alexandroupoli on the Turkish border, with just the occasional document check.

But the moment we leave the EU, this stops. Your component manufacturer may still comply with exactly the same standards, but if the product requires independent testing , any testing houses and the regulatory agencies are no longer recognised. The consignment has no valid paperwork. And, without it, it must be subject to border checks, visual inspection and physical testing.

What that means in practice is that the customs inspector detains your shipment and takes samples to send to an approved testing house (one for the inspector, one for the office pool, one for the stevedores and one for the lab is often the case). Your container inspection is typically about £700 and detention costs about £80 a day for the ten days or so it will take to get your results back. Add the testing fee and you’re paying an extra £2,000 to deliver a container into the EU.

Apart from the costs, the delays are highly damaging. Many European industries have highly integrated supply chains, relying on components shipped from multiple countries right across Europe, working to a "just in time" regime. If even a small number of consignments are delayed, the whole system starts to snarl up.

Then, as European ports start having to deal with the unexpected burden of thousands of inspections, and a backlog of testing as a huge range of products sit at the ports awaiting results, the system will grind to a halt. It won't just slow down. It will stop. Trucks waiting to cross the Channel at Dover will be backed up the motorway all the way to London.

For animal products exported to the EU, the situation is even worse — if that is possible. Products from third countries (which is now the UK) are permitted entry only through Border Inspection Posts (BIPs). Only at these can they be inspected and, if necessary, detained for testing. But, for trade between the UK and EU member states, the capacity of BIP is entirely inadequate. Until more capacity has been provided, trade in these products stops dead — say goodbye to a £9 billion export trade.

If the way out of the country becomes blocked, very quickly the return route gets blocked and incoming trade from the EU starts suffering. In the UK, goods from the EU are no longer delivered. Trade slows. Manufacturers which depend on imported components start struggling and then have to close. And while the naysayers talk about losing three million jobs if we leave the EU, we are looking at twice that and more — seven or eight million jobs are at stake.

At this point, you might say, “But how can this possibly happen?”

The WTO Option advocates will tell you that countries such as China, the United States and Australia all trade with the EU without formal trade agreements, and therefore operate under WTO rules. They don't have these problems so why would the UK? The answer, however, is remarkably simple. These countries don't rely solely on WTO rules.

What the WTO Option advocates have done is make a very basic but fatal mistake. They’re so obsessed with tariffs, they haven’t begun to focus on non-tariff barriers. Thus, by and large, they are only looking at trade agreements dealing with tariffs — a sub-set of international agreements which are registered with the WTO. But there are many different types of agreement and many which involve trade, either directly or indirectly, which are not registered with the WTO. These, for our WTO Option advocates, remain under the radar. To them, they are invisible.

Yet one of the most important types of trade agreement is the Mutual Recognition Agreement (MRA) on conformity assessment. This gets round the problem of border checks, as the EU will then recognise the paperwork on product testing and conformity certification. Throw in an agreement on Customs cooperation — to ensure that official paperwork and systems mesh — and you are on your way to trouble-free border crossings.

China has a Mutual Recognition Agreement on Economic Operators, signed in May 2014, the United States has one on conformity assessment which runs to 81 pages, agreed in 1999. Australia has one on conformity assessment. 

All of these are outside the remit of the WTO but they are nonetheless trade agreements, and vital ones at that. But look then what the think-tank Global Britain — another WTO Option advocate — is doing. "As an example", it writes, "Australia has no trade agreement with the EU…". It then goes on to cite an EU web page, which actually tells us:

The EU and Australia conduct their trade and economic relations under the EU-Australia Partnership Framework of October 2008. This aims, apart from cooperation on the multilateral trade system and trade in services and investment issues, to facilitate trade in industrial products between the EU and Australia by reducing technical barriers, including conformity assessment procedures.

What is the EU-Australia Partnership Framework, if not (inter alia) a trade agreement? In the detail, it sets the framework for the all-important MRA on conformity assessment. One MRA runs to 110 pages, with an amendment running to a further 20 pages.

There are, in fact, 82 agreements between the EU and Australia, of which 18 are bilateral. There are 65 between the EU and China, of which 13 are bilateral. Between the EU and the United States, there are 135, of which 55 are bilateral. As regards trading agreements, not only is Global Britain incorrect in its assertions, its authors apparently don’t even read their own reports.

Such is the importance of agreements such as the MRAs that the UK would have no option but to seek a deal with the EU, for which there is a facility within Article 50. But, the moment it sought such deals, it would no longer be relying exclusively on WTO rules. It would now be seeking bilateral agreements along the lines of the so-called "Swiss option". This comes with as many problems as the WTO Option, if not more, not least the length of time it would take to agree a Swiss-type arrangement (10 years or more?)…And that's assuming the EU wants another complex Swiss-type arrangement, which it doesn't.

One can say, unequivocally, that the UK could not survive as a trading nation by relying on the WTO Option. It would be an unmitigated disaster, and no responsible government should allow it. The option should be rejected.

13/03/2017 link

Opposition to the EEA is wholly irrational

Friday 2 September 2016  

Much of the speculation around what Britain should attempt to negotiate centres around what Britain shouldn't do rather than what it should. On the one hand we have John Mills of Labour Leave, absolutely adamant that the suicidal WTO option is a possibility and on the other we have Andrew Tyrie in an Open Europe report ruling out all of the options including the EEA.

"The UK need not replicate the arrangements of other countries" he asserts. It "will want more market access than Canada, whose trade deal with the EU contains only limited provisions on services, and more control and influence than Norway, which is a passive recipient of single market regulation."

This is cake and eat it stuff. Tyrie recognises the failings of the WTO option and that it should be avoided at all costs. The basis for this is that the WTO option says nothing of recognition of standards along with all the other issues surrounding non-tariff barriers. He recognises that a Canada deal is insufficient and so he leans toward a comprehensive and close relationship with the EU.

It appears he wants the same level of participation as Norway but a direct say over the rules. Some might say that is EU membership. However this blog would challenge the assertion that Norway is "a passive recipient of single market regulation". It isn't. As much as there is direct consultation and a veto mechanism within the agreement, Norway gets an enhanced say in the rules by way of being full participants in the global bodies where the rules are made. Tyrie make no real mention of this. He is merely repeating empty mantras.

This though is a common view and an enraged Tweeter informs us that "Britain does not need or want prior agreements. We can make our own agreement, not cobble together someone else's". Indeed we can make our own agreement but if we want to negotiate something as comprehensive as the EEA then we are looking at six to eight years of negotiation. Tyrie remarks that his fantasy scenario will indeed take more than two years and believes that some unspecified "transitional arrangement" will fill the void. There are no details as to what this looks like.

What critics of the EEA miss is that the EEA agreement is not just an agreement on single market participation. It is an interface mechanism with its own infrastructure for constant review and reform for the purposes of entering special conditions, exemptions and reservations. And so though we may be adopting an agreement that someone else has, there are mechanisms to tailor the agreement to the needs of the UK, be that enhanced controls over freedom of movement or better consultation on regulations.

Because it is a system of continuous development, including efforts to extend financial services access it is not set in stone. Far from cobbling together a copy of the Norway agreement we would simply be using the same conduits into the EU. The purpose of joining it is that as an agreement to which we are already a party, we would simply be switching sides, the groundwork for which we could do before even triggering Article 50 which means part of the process can be under way without having to negotiate and extension. We can have concurrent negotiations.

Once we have transitioned into EEA status we then use the mechanisms and processes to further negotiate our exit issue by issue, leaving things that work untouched. We then have no need of bespoke transitional agreements because the EEA very much is a bespoke transitional agreement with a view to eventually leaving the single market to participate in the global rules based system as it develops.

Opponents of the EEA really need to explain what the point of reinventing the wheel is. Why should we create unnecessary uncertainty to achieve much the same as what already exists? Moreover, the EU is not especially keen on a patchwork of agreements like Switzerland which need constant unstructured attention where neither side is happy with it. If it doesn't want that then why would it want to replicate an EEA style agreement solely for the benefit of the UK when it already has an interface mechanism for non-EU market participants?

More to the point, why add the complication to something which need not be complex? Effectively the EEA serves as a Brexit safe space with no cliff edges where the process of exit happens at a pace that doesn't disturb business.

What Tyrie is doing is closing down the debate, rubbishing entirely viable options in favour of a lengthy and risky process for no real advantage. You could point out the numerous deficiencies in the EEA agreement where Norway suffers, but the obvious point is that we are not Norway. We have market clout and we have world leading industries which means we have a strong hand when we seek new annexes to the agreement.

Moreover there is a structured means of reviewing the EEA agreement. Entering some custom final agreement means we have to persuade the EU to open it up for review in the future. The EEA already has review systems in place so we can revisit things we get wrong.

As to immigration, the EEA does have safeguard measures on freedom of movement and we can leverage them into a more formal quota system within the EEA framework. That would be a strong start to immigration reform. This would be sufficient if we use the opportunity to also tackle non-EU immigration issues. We will still need a fairly high turnover of EU people and we do not want to close down opportunities for UK citizens living in the EU. One thing the UK does not want to do is cut its nose off to spite its face. Full control is neither necessary or desirable and the advantages are slender.

There is every reason to believe the EU would be amenable to EEA membership. Firstly a messy Brexit is damaging to the EU economy as a whole. Secondly, as discussed, a bespoke system is time consuming and will require ongoing use of diplomatic runtime for the next decade. Using that which is already in place requires only a marginal increase in resource. The alternatives to the EU require a gargantuan commitment of intellectual resources right about the time the EU needs to be directing its trade expertise elsewhere. Not least with the alleged imminent failure of TTIP and CETA.

The EU can either concede on Freedom of Movement for the sake of a cost effective Brexit or we can create risks and complications that serve nobody. There is no reason why we should accept freedom of movement as an EU red line since every other member wants similar concessions and at some point in the future the EU, if it wants to survive, it will have to bend to this dynamic. Nobody is happy with freedom of movement as it stands and a refusal to reform it is more likely to see others moving toward exit than any special concession for the UK.

When looking at the available options it would appear that the EEA is the instrument most people can live with. Scotland will want full single market participation and so will the forty eight per cent of the UK who voted to remain. There simply isn't a large enough majority for the hardline Brexit proposed by eurosceptic Tories. It would not bring the benefits they believe it does and a hard Brexit would be considered one of the greatest unforced political errors of all time. By the same token, attempting a bespoke agreement would be considered a curiously pointless waste of energy.

From the beginning The Leave Alliance has maintained that Brexit is a process, not an event. The EEA is far from ideal but in the very first instance it does return control over some crucial areas of policy which gives us enough to be getting on with. The structure of the agreement means that we can revisit the process at our leisure and provides the least disruption for the EU and the UK which is ultimately what the markets want too. There is no value in attempting to appease the unappeasable by pursuing a hard Brexit because it will not deliver in its promises. Tory fantasies of "free trade" are for the birds. Nowhere in the real world does this exist.

It is to our great bemusement that there is such an irrational phobia of the EEA. It is is the most pragmatic, most flexible means of leaving the EU and it is not set in stone even after the fact. The often repeated canard that Norway has no influence is demonstrably untrue, as is the assertion that the EEA means accepting full EU freedom of movement. It is our view that those who persist in repeating these mantras do so for less than honest reasons.

02/09/2016 link

Brexit: The danger we now face

Wednesday 6 July 2016  

With the first round of the Conservative Party leadership contest out of the way, we see Theresa May emerge with what should be an unassailable lead of 165, taking votes from exactly half of the 330 Conservative MPs.

Leadsom trailed badly with a mere 66 votes but beat Gove, with only 48 votes, to second place. Crabb took fourth place with 34 votes and Fox brought up the rear with a mere 16. These two have now pulled out, pledging their support to Mrs May for the next round, to be held on Thursday. 

On the face of it, this should give Mrs May a commanding lead, but leave Leadsom still in the race, with the final decision to be put to the constituency members. Struck down by the "curse of the Tory frontrunner", we could then see Leadsom take the crown – and the keys to No 10. 

However, we are dealing with what is slated to be one of the most sophisticated electorates in the world. In a bid to strengthen May's position out in the country, her supporters could transfer enough votes to Gove to assure him the second place, reducing to run-off to a contest between May and Gove the "Boris killer". In that scenario, May wins convincingly. 

Should the more likely scenario arise, with a final contest between May and Leadsom, and Leadsom wins, we are faced with the great danger of having a prime minister who has little understanding of what it takes to negotiate a successful withdrawal from the EU.

On the other hand, if May is elected, we are faced with a danger just as great, in having a prime minister who brokers an exit plan which is so successful that we end up stuck with it, and in a position far worse than we are at present. 

If this sounds perverse, it is. What we are seeing from the "remains" is a sudden enthusiasm for the Efta/EEA or "Norway option", an option which, prior to the referendum, they had all been falling over themselves to demolish. 

This, as readers here well know, we support as an interim option, acknowledging that it would be untenable for the United Kingdom in the longer term. We thus look for a different end game, which then takes us out of the EEA.

Unfortunately, the opposition is wise to the flaws of the EEA option and, from the Robert Schuman Foundation, the intellectual heart of the EU, we see proposals to modify the EEA to such an extent that it will soften some of the worst features of the EEA, and thus weaken the pressure to move on. 

What they have in mind are changes to Part VII of the EEA Agreement, addressing "the inability of the EEA States" (they mean Efta states) to take part in the vote over the internal market rules.

Instead of the Council of the European Union (formerly the Council of Ministers) taking the dominant role, the EEA Council would be the body charged with approving Single Market legislation, thereby giving Efta members some "say" in how the rules were made. 

These decision-making powers might also be extended to the Union’s programmes in which the Efta states had chosen to participate, such as the research framework. 

Similarly, the Foundation argues, it might be possible for the mixed EEA parliamentary committee to be transformed to include all Union parliamentarians and "European Members of Parliament" appointed by the non-EU EEA States. These EMPs would meet in Brussels and be able to take part in co-decision in the same way as the EEA Council. 

As to freedom of movement, the Foundation acknowledges that it would continue to apply. But it notes that "the EEA Agreement provides safeguard mechanisms that can be activated unilaterally". Thus, far from trying to conceal or argue against the Liechtenstein solution, it seems possible that the UK could be offered this as a way out of the free movement impasse.

The changes proposed, if implemented - plus the application of the Liechtenstein solution (which would perhaps involve some reciprocal restrictions) - would effectively formalise the creation of a multi-speed Europe. The UK would become part of the "outer circle" of a construct dominated by the eurozone, the result little different from the "associate membership" expected of a new treaty.

By this means, we could be on the way to becoming a "second-class citizen", locked in a Greater Europe whose appetite for the creation of a United States of Europe would be entirely undiminished. The only difference is that it would be disguised as membership of an enhanced EEA, possibly termed the "EEA-plus". We would be "out" but still in.

In the choice between May and Leadsom, therefore, we could find ourselves wedged between two undesirable outcomes – a choice between second-class membership in an enhanced EEA, or the chaos of a world outside the Single Market with no coherent replacement. In these choices, there is danger either way. 

The obvious antidote is to create a third way, the idea set out in Flexcit, where the third phase offers the opportunity of creating a genuine Europe-wide single market, freed from the grip of Brussels. For that, we will probably have to look not to either of the leadership contender front runners, but to Parliament, which has the power to shape the exit settlement, if it chooses to use that power. 

To that effect, as Flexcit nears 100,000 downloads, we have published a new edition, Version 7. This is the first written specifically for the post-referendum period. It is marginally shorter, despite additions which cover border issues in Ireland, EU budget contributions and the Liechtenstein solution, omitting some of the arguments relevant only to the referendum campaign.

Progressively, we will reshape the contents to put more emphasis on the end game, rather than on the mechanics of leaving the EU, in the hope of influencing the final outcome. 

Read more:

Managing immigration within the EEA: The Liechtenstein solution

In response to common misconceptions of the EEA option

06/07/2016 link

In response to the common misconceptions of the EEA option

Wednesday 6 July 2016  

The EEA option aka The "Norway option" involves joining the European Free Trade Association (EFTA) and trading with the EU via the European Economic Area (EEA) as a means of achieving an economically secure, de-risked Brexit.

It greatly simplifies our time limited negotiations, protects our economy, answers the Northern Irish and Gibraltar question and greatly eases the concerns of Scotland. A bespoke trade agreement that adequately replicates our current trading relationship cannot be achieved in two years and that is why being part of the EEA as stage one in the long and complex process of leaving the EU is by far the most viable, sensible and achievable option.

The EEA option does not mean we would be trying to be Norway; we are two very different countries. It merely refers to adopting a similar framework in how we relate to the EU legally and economically. It should not be thought of as an alternative to EU membership, but as a means of facilitating our secession.

On Immigration

On immigration the respective situations of Norway and the UK are very different. Norway is party to the Schengen Agreement; it is a voluntary signatory and Schengen is separate from the EEA agreement. Being in the EEA does not require membership of Schengen. Norway also has land borders with the EU so the situation is not really comparable to the UK. We do have border controls and far more scope to manage immigration though good domestic policy, which has been sorely lacking.

On Freedom of Movement

The EEA freedom is limited to free movement of workers. Free of the Charter of Fundamental Rights we could limit free movement to workers and refuse entry to dependents on people who are not economically active.

More importantly, despite the apparent uncompromising position of Commission officials and some European leaders; the EU has been quite willing to negotiate with EFTA/EEA states on freedom of movement. With Liechtenstein a precedent has been set whereby via Article 112 of the EEA Agreement it has eventually moved towards a quota system. This proves that it is possible to manage immigration within the EEA.

What Norway pays and its European strategy

Those who proliferate the “still pay, no say” myth about the EEA option rarely go into any detail about what Norway pays to maintain its relationship with Europe. Most of what Norway pays into the system is not paid into the EU budget and EEA countries pay significantly less than the UK for their relations with the rest of EU.

Norway pays approximately £7,024,600 into the EFTA budget. It also makes a contribution to the economical rehabilitation of post-Communist countries via the “Norway Grants” which amounted to around €804 million in the period 2009 -2014. This money is not paid to the EU.

Norway also provides 95 percent of the funding to the EEA Grants. The two together amounted to €1.8bn over the period, of which €1.71bn was paid by Norway. As with the Norway grants, the EEA grants are not part of the EU budget. They are administered by the independent Financial Mechanism Committee. They are not specifically payments for access to the Single Market. They are effectively part of Norway’s strategy for co-operation with the EU.

That, however, is not the full extent of relations. As of 2014, Norway participated in twelve EU programmes, including Horizon 2020, Erasmus +, the Consumer Programme and the Copernicus programme. It also has a bilateral arrangement for participation in interregional programmes under the EU’s Regional Policy.  Additionally, it takes part in the activities of 27 EU agencies.

As for the budget for these activities, over the 2007-2013 multi-annual period, total EU spending was around €70 billion, of which the estimated EFTA contribution was in the order of €1.7 billion – averaging approximately €250 million a year. Norway carried 95.77 percent of that cost (€1.63bn). This cash, therefore, is for services rendered and, even then, the funding was not one-way. Around €1.01bn was returned from EU funds, making the seven-year net contribution in the order of €620m – or about €90 million a year.

Despite the campaign rhetoric of the Remain campaign, leaving the EU does not mean an end to mutually beneficial cooperation. We can and will be a constructive part of Europe, participating in joint programmes and EU agencies. Yes, this will cost money but the benefits far outweigh the upfront financial costs.

On EU “rules” and the “no say” myth

In October 2015 we contacted the EFTA Secretariat, which administers the EEA agreement, and found that approximately 21% of EU legislative acts in force (after allowing for repealed acts) applied to the EEA agreement. Since then, the number of EU laws has decreased (due to consolidation rather than removal of red tape) and the figures are approximately 5,000 out of 20,000 acts in force, i.e. about 1 in 4 EU laws are Single Market rules applicable to EFTA EEA states.

The tired canard that Norway has “no say on the rules” is of the Single Market is particularly stubborn, not least because its proliferated by Norwegian Europhiles still keen on accession and with an interest in preventing Brexit.

This myth is disproven by the EEA agreement itself:

According to the principle of unanimity applied in the EEA Joint Committee, all the EFTA states must agree in order for new EU legislation to be integrated into the EEA Agreement and for it to apply to cooperation between the EFTA states and the EU. If one EFTA state opposes integration, this also affects the other EFTA states in that the rules will not apply to them either, neither in the individual states nor between the EFTA states themselves nor in their relations with the EU. This possibility that each EFTA state has to object to new rules that lie within the scope of the EEA Agreement becoming applicable to the EFTA pillar is often referred to as these parties’ right of veto.

So far, this right has not been exercised. This is partly because when EU legislation is to be integrated into the EEA Agreement it is submitted to the EEA Joint Committee at the final stage of an extensive process of information and consultation between the contracting parties. The purpose of this process is to ensure that agreement is reached on such decisions. During the negotiations on the EEA Agreement, compromises were found if a state had constitutional objections to the content or could invoke fundamental national interests. Even though constitutional problems are unlikely to arise in the day-to-day EEA work, the will to reach necessary compromises must still be regarded as a basic condition for cooperation.

Within the structure of EFTA (which hosts the EEA agreement) there is a range ofconsultative bodies, including the EEA Council, three joint committees and then over 30 working groups. There is also the EFTA surveillance authority and the court. Thus, to assert that Norway has no say is completely untrue, unambiguously so.

Norway has the ability to protect its sovereignty and has used it when necessary, including refusing to implement  proposed regulations that would cover offshore drilling.Oil and Gas UK objected too but the British government had no such defence.

An example often given to exemplify the lack of Norwegian influence is that of amanufacturer of hot water tanks that found that its entire range fell foul of new size regulations designed to conserve energy since Norway’s officials were “not party to discussions on the issue.” This is now a cliché in the tradition of anti-Norway option articles.

It refers to the Norwegian domestic heating manufacturer called OSO Hotwater and is based on the complaints of its boss Sigurd Braathen who has claimed that he discovered “overnight” that the EU was introducing new environmental and energy efficiency standards that favoured gas powered boilers over electric ones and would render half of Oso’s products useless and unsellable. His sob story, however, crumbles under scrutiny.

Legislation like this does not pop up overnight or come about unexpectedly. The instruments in question appeared in June 2010 as the draft Commission regulation with regard to ecodesign requirements and delegated regulations for energy labelling of local space heaters, and also Commission Delegated Regulations of 18 February 2013 supplementing Directive 2010/30/EU with regard to the energy labelling of water heaters, hot water storage tanks and packages of water heater and solar devices.

As delegated legislation, this had been well signalled, stemming from a 2010 directive, the nature of which had been the subject of much discussion. The particular feature of the legislation that was causing such concern was the inclusion of electric heaters.

However, contrary to the myth Norway was not helpless and without allies in the face of EU regulation; this is an example of Norway building alliances in order to exert influence and help push back and force the Commission to rethink. The whole heating industry was outraged by this; not only did Norway object, but the issue was taken up by the Nordic Council of Ministers, which included Sweden, Finland and Denmark.

It is simply untrue to assert that Norway did not have a say. It represented itself and worked through the Nordic Council and via the standards bodies, it had access to CEN and CENELEC, and through them to the Commission. It was an influential element of the technical system that was telling Brussels their regulations were a bad idea in need of redesign.

It took until August 2013, more than three years after the draft regulations had been published, for the highly revised regulations to come into force, during which period the Norwgians were fully consulted.

It is therefore impossible to feel sympathy for Sigurd Braathen because he should have been fully aware of the process and he has suffered only because of his own negligence.  The EU was transparent in publishing its intentions. The standards bodies are not EU institutions and all participating states are consulted through their own standards agencies, in which consumer groups, manufacturers and trade guilds are involved in the process. This at the very beginning of the process before it goes anywhere near the EU parliament for discussion – and incidentally, the best way of influencing the substance of regulations.

In any case, these energy efficiency standards are embodied in EU law and derive from international standards such as ISO 14040. In this there is a global hierarchy If there is a global standard, then trading blocs and WTO members must adopt it. They can embellish it locally, but not in such a way as to create a trade barrier. For international trade purposes, the international standard takes precedence over the local standard, and as long as the exporter complies with the international standard, the importer nation (or bloc) can’t refuse it. If OSO had produced to the global standard there wouldn’t have been a problem.

So Norway is able to influence the EU rules that affect it and register a reservation. Crucially, the substance of much EU regulation is derived from international standards and the quasi-legislation of the multitude of international organisations that make up the developing global regulatory system. At a global level Norway is active and engaged able to speak and act independently and wield a veto when necessary.

On the international stage

Norway punches above its weight in the world and is able to act independently at an international level. As a Member State Britain is bound by Treaty to represent the EU position in international organisations and at international conferences, in the EEA we will gain the ability to pursue our own agenda and build alliances and coalitions flexibly and freely.

Helle Hagenau, formerly the international officer of the Norwegian No2EU campaign,spoke enthusiastically to us about Norway having “kept its political independence both nationally and internationally”. This has been “especially valuable in dealing with the United Nations”, she told us:

When the Norwegian government decides to promote a certain point of view at the UN General Assembly, we just do it”, she said. “There is no need to negotiate with numerous other countries and an EU Commission, resulting in a watered down version of that message“.

She recalled how, when she was a member of the official Norwegian delegation to the UN General Assembly in New York, she had both the Swedish and Danish delegations tell her that they had asked the Norwegians to present their case to the UN. They had been unable to do so themselves, constrained as they were by the “common position” within the EU.

Anne Tvinnereim, formerly state secretary for the Ministry of Local Government and Regional Development, told a similar story. With Sweden bound by the EU common position and forced to informally ask Norway to represent a different position within the UN.


The importance of the fishing industry was pivotal to the Norwegian refusal to join the EU, meanwhile Edward Heath was quite willing to destroy our own in his desperation to join the EEC.

Agriculture and fishing are excluded from Norway’s agreements with the EU and much is made of the high protective tariffs driving up prices and thousands of jobs being exported out of Norway. This is, again, an oversimplified view of something a mite more complex and again we have the caricature of Norway as a passive victim.

Norway has had something of a difficult relationship with the EU over its fish exports and is not exactly innocent in this as it has a record of predatory pricing and “dumping” its surpluses. Trade barriers were first erected back in 2004 after complaints that Norway had been flooding European markets with cut-price Salmon, to the detriment of Scottish salmon farmers. These anti-dumping measures were repealed in 2009 but currently tariffs are raised again.

Nonetheless, Norwegian exports are booming. It’s a good time to be a salmon farmer in Norway and profits are soaring thanks to worldwide exports which is down to trading agility. Norway has its own trade policy and is therefore free to trade with who it wants. It has a preferential tariff agreement with the USA, has a beneficial deal with China and huge exports to Japan.

As for the regulation of the industry; Norway is a serious player. When it comes to international rules on food, to ensure public safety and fair trading, the UN body Codex Alimentarius, is the “top table” as it makes most of the international standards regarding the production and marketing of food. Not only is Norway an independent member of Codex, it even hosts the all-important Fish and Fisheries Products Committee. Thus, it is the lead nation globally in an area of significant economic importance to itself.

When it comes to trade in fish and fishery product, Norway is able to guide, if not control, the agenda on standards and other matters. The EU then reacts, turning the Codex standards into Community law, which then applies to EEA countries, including Norway. But it is Norway, not the EU, which calls the shots.


Adopting the EEA option allows us to leave the EU in an economically secure way and minimise disruption. It is a transitional arrangement achievable within the two-year Article 50 deadline and therefore the only realistic option on the table. It is not perfect but it is not the final destination, just the first. Our relationship with the EU will evolve from there as we disentangle ourselves from forty years of integration.

The dynamic of the EFTA/EEA arrangement changes significantly with the addition of Britain as it will become a significant trading bloc in its own right. So although the EEA relationship at present is tilted in favour of the EU; with Britain joining the Association would be in a much stronger position to reform the sub-optimal parts of the Agreement. It also gives Britain the flexibility to work with EFTA countries in matters of trade but also act independently. It will create two Europe’s; one will be a supranational political and judicial union, the other a trade association.

06/07/2016 link

Andrea Leadsom is not fit for the task at hand

Tuesday 5 July 2016  

The good thing about Andrea Leadsom's launch speech started off well enough as she stated that the result of the referendum was final. It must be respected, she added, declaring roundly: "The United Kingdom will leave the European Union". 

Very quickly, though, it got down to detail, and her pitch began to unravel. Freedom of movement "will end", she said. The British parliament will decide how many people enter our country each year to live, work and contribute to our national life.

Billions of pounds more will be invested in the NHS from the savings we make from cancelling our EU membership fee, the laws and regulations that govern the British people will be made in Britain – and not Brussels. And at elections the British people will be able to appoint or sack politicians, secure in the knowledge that EU bureaucracy cannot undermine their wishes. 

As to the negotiations, Leadsom informed us that she intended to keep them "as short as possible". Neither we nor our European friends need prolonged uncertainty, she said, "and not everything needs to be negotiated before Article 50 is triggered and the exit process is concluded".

Her "dedicated" team would consult opposition politicians, business people, farmers, trades unions and trade negotiators. And, having done so, she would set out trade, border and security agreements, with the "renegotiation" in the hands of a dedicated Cabinet colleague. 

She talks of a "trade agreement" with the EU without being specific as to its nature, but then commits to ending free movement, which presumably means dropping out of the Single Market – although she doesn't state this specifically. 

Worryingly, though, she talks about "savings we make from cancelling our EU membership fee", which means she must think there will be any, and then – without even doffing a cap to globalisation (much less the possibility of EEA membership) declares that laws and regulations "will be made in Britain – and not Brussels".

That she intends to keep the negotiations "as short as possible" is a meaningless phrase. The upshot of this effort is a studied vagueness. It is possible to infer much from what she says, but the fact that inference is needed tells its own story. You would have thought by now that politicians might have learned that this is exactly the sort of behaviour that has alienated people from politics. 

Andrea Leadsom clearly does not have a grip on the issues and is unable to offer a convincing roadmap for successful negotiations. We need far more clarity than she has so far offered. 

This is the woman who as junior Treasury minister attracted the ire of her officials, who declared her, "the worst minister we’ve ever had". Said one official, "She found it difficult to understand issues or take decisions", while another said: "She was monomaniacal, seeing the EU as the source of every problem".

The very lack of detail from Leadsom allows any number of constructions, none of them good. Our potential PM must have a strong position on the following challenges: 

The first is: when would they recommend triggering Article 50, and under what circumstances; second, would they seek to secure full participation in the Single Market; and third, in the event that Single Market participation is sought: how would they reconcile this with the demands for unrestricted free movement of persons? Fourth, if we do not seek to remain in the Single Market, how can we be assured of concluding a trade agreement within the two-year timeframe, and how closely will such an agreement replicate the benefits of being in the Single Market? 

Anyone who has followed our work will know exactly why these are the essentials. Those who do not, by now, are probably beyond help. 

The crucial point to make in evaluating the leadership contenders is that anything else beyond Brexit is of secondary importance. While we need a Prime Minister who can manage the affairs of government, there is nothing more important at the moment than negotiating a successful withdrawal from the European Union. 

As we wrote in Flexcit (in words that were in the original edition), "the economic consequences of a botched withdrawal could be dire". Any significant perturbation in our relations could cause major disruption to our economy, well beyond just our trade. It could even drive us into recession. There is no margin for error. We cannot afford to get it wrong. 
Even the prospect of Article 50 being triggered before we are ready is not one we could even countenance. 

Increasingly, we see a delusional woman who seems to lack any clear idea – or any idea at all – of what we're dealing with. But that much is now becoming evident even to the MPs. At a hustings meeting of the1922 Committee, last night, Leadsom is said to have "stumbled".

Backbenchers left the packed meeting muttering under their breath after the energy minister fielded questions on Brexit and how much support she was receiving from Ukip. One cabinet minister said she was asked three times about her backing from Ukip and Leave.EU. "When you're asked to say you're not UKIP at a hustings to be leader of the Conservative party, you're in trouble", he said. "It was a car crash".

Another MP said her pitch was a "fucking shambles", adding: "She babbled on about the importance of the frontal cortex for emotional development, said she'd trigger Article 50 immediately – and then that she wouldn't".

It cannot be overstated what an important time in our modern history this is, or how vast the challenges we face really are. This is deadly serious. Andrea Leadsom is not fit to lead us. 

05/07/2016 link

Managing immigration with the EEA: The Liechtenstein solution

Monday 4 July 2016  

One of the most important issues in the post-referendum debate on Brexit is whether or not we should remain in the Single Market to facilitate negotiations and ease our transition. The clear, sensible and rational answer to this is  "yes”. However, it is assumed that we would have to accept freedom of movement as it is. Any number of high-ranking Commission officials have warned us that this is "non-negotiable".

However, it must be known that the Commission officials (and the European politicians who joined them), were not telling the truth about freedom of movement – or at least the whole truth in respect of the EEA. 

The EU has been quite willing to negotiate with one of the three EFTA/EEA states on freedom of movement. Furthermore, they have come to an amicable solution, which has allowed it to secure an amendment to the treaty giving it a permanent opt-out to freedom of movement. The state concerned now operates a quota system little different in principle to the Australian points system. 

That the state is the principality of Liechtenstein need not worry us. It may be a tiny micro-state with a population of 37,000 spread over an area of 61 square miles – less than half the area of the Isle of Wight – but it is a fully-fledged Contracting Party to the EEA Agreement. It has assumed exactly the same rights and responsibilities as any other EFTA state. 

Furthermore, Iceland has used exactly the same provisions to suspend free movement of capital following the 2008 financial crisis, demonstrating that there is a real and effective option within the EEA Agreement which could be available to the UK, and solve a lot of problems. 

Liechtenstein joined the EEA on 1 May 1995.  On the 10th March 1995 the EEA Council - part of the formal consultation structure set up under the agreement – looked at the situation dominating Liechtenstein's entry. 

The Council recognised that Liechtenstein had "a very small inhabitable area of rural character with an unusually high percentage of non-national residents and employees". And it decided that unrestricted free movement of workers would be detrimental to the country.

Like the UK, but at the opposite end of the scale, the country was not able to absorb unlimited numbers. 

Moreover, the Council acknowledged "the vital interest of Liechtenstein to maintain its own national identity". It thus concluded that the situation "might justify the taking of safeguard measures by Liechtenstein as provided for in Article 112 of the EEA Agreement".

Article 112 is part of the "safeguard measures" – popularly known as the "emergency brake". Where serious economic, societal or environmental difficulties of a sectoral (sic) or regional nature arise, which are liable to persist, it allows EFTA states (but not EU Member States) unilaterally to take appropriate measures to resolve them. EU Member States have to rely on the Commission to take action. 

Back in 1995, with a massive immigration problem looming, the EEA Council asked all members to "endeavour to find a solution which allowed Liechtenstein to avoid having recourse to safeguard measures". However, no long-term solution was found so a temporary expedient was arranged: transitional arrangements which allowed the country to impose "quantitative limitations" on immigration until 1 January 1998. These were incorporated into Protocol 15, appended to the Agreement. 

The next move was towards the end of 1997, just before the end of the transitional period. There had been no long-term solution found so Liechtenstein unilaterally invoked the Article 112 safeguard measures. By this means, it kept the existing immigration restrictions in place when the transitional period ended. 

There were further attempts to resolve the situation in 1998, which were unsuccessful. Then, on 17 December 1999 after a further review, the EEA Joint Committee (another of the formal EEA bodies that mysteriously have "no influence") decided that the "specific geographical situation of Liechtenstein" still justified "the maintenance of certain conditions on the right of taking up residence in that country". 

This unstable situation, however, could not be allowed to last. In order to resolve it, the Joint Committee came up with a proposal for a longer-term solution. Liechtenstein was to be allowed to introduce a quota system controlling the number of workers allowed to enter the country. This was given formal status by an amendment to Annex VIII of the EEA Agreement, setting out what were called "sectoral adaptations", cross-referred to Annex V on the free movement of workers. 

As a formal amendment to the EEA Agreement, the decision provided for a new transitional period until 31 December 2006, and allowed for the new measures to apply subject to a review "every five years, for the first time before May 2009".

After reviews in 2009 and in 2015, it was concluded that there was no need to make any change to the current rules. The provisions on the "sectoral adaptations" could remain unchanged. Under the current arrangement, Liechtenstein issues 56 residence permits for economically active and 16 permits to economically non-active persons each year. Half of the totally available permits are decided by lottery, held twice a year. 

The numbers involved are, of course, very small, but Liechtenstein is a tiny country. What matters is that a precedent has been set. Within the framework of the EEA Agreement, an EFTA state has suspended freedom of movement and replaced it with a quota system for what amounts to an indefinite period. 

This is where the situation currently stands. Thus, whatever the EU might declare in terms of freedom of movement being "non-negotiable" for EU Member States, it is undeniable that it is negotiable within the framework of the EEA Agreement, as it applies to EFTA states. 

Therefore, if the UK chooses to follow the EFTA/EEA option as an interim solution to expedite the Article 50 settlement, once the agreement is adopted it can follow the procedural steps pioneered by Liechtenstein. And by this means, it can impose limits on immigration from EEA states. 

In terms of applying a quota system, it should be noted that, in the Australian-style points system, only 23 percent of the migrants admitted come under the points system. The overall limit is set by way of an arbitrary quota, set annually – currently at 190,000. This is, by any measure, a quota system.

To that extent, the UK can have some of its cake and eat it. The "Liechtenstein solution" potentially gives our negotiators far more flexibility than at first imagined. We accept the EEA acquis as it stands, but negotiate "sectoral adaptations" that bring the Agreement into line with UK needs.

This should help us reach an amicable settlement with the EU, while keeping us in the Single Market.

04/07/2016 link

Michael Gove is the wrong man to take charge of Brexit

Saturday 2 July 2016  

I am a big fan of Michael Gove. I admire his conviction, the principled nature of his politics and the sheer passion that drives him. Despite this, I firmly believe that he is absolutely not the right person to lead the country out of the European Union. If we were in need of a general to fight the hated enemy, then Gove would be the man. He is radical and will pursue his aims zealously, but his strengths are now his weaknesses and those traits I most respect render him unsuitable for the job at this crucial time.

The EU is not our enemy. We must now open amicable discussions with our allies and lay the foundations of our future relationship in the spirit of good faith. For the good of all of Europe we need compromise and pragmatism. There have been promising signs that we are being offered an olive branch by key figures; we need someone who will grasp it with both hands, not someone who will take that branch and beat them with it.

I’m a totally committed Brexiteer but I do not believe it necessarily beneficial to have a Brexiteer who is openly hostile to the EU leading negotiations with it. Gove has spent months spouting anti-EU diatribes and has even hinted at a desire to see the EU break up, he has therefore already started off on the wrong foot with those who will sit on the opposite side of the table.

Throughout the referendum campaign he was articulate and spoke with a moderate tone; he came across well to the general viewer. However, those in the know could see how badly briefed he was. He spoke of a mythical “free trade zone stretching from Iceland to Turkey that all European nations have access to”; there is no such thing, if only there was. This is the Vote Leave fudge which helped them dishonestly muddle through the campaign but we are now in a very serious situation and the last thing we need is for the Vote Leave ethos to continue by proxy.

He has now said that he will end free movement and introduce an “Australian-style points system” as well as diverting membership fees to the NHS. Gove is the Vote Leave candidate with a Brexit manifesto inspired by his trusted adviser Dominic Cummings; the man who still thinks that unilaterally breaking our Treaty obligations by repealing the 1972 European Communities Act instead of invoking Article 50 is a viable idea. To be clear, it would be a political and economic disaster. Invoking Article 50 is the only legal means of leaving the EU and the only method that leads to a negotiated settlement. This is the kind of ignorance about the EU being whispered into Gove’s ear for months.

Cummings was responsible for much of the dishonesty of the Vote Leave campaign which is now blowing back in their face and damaging the whole Leave campaign by association. He has spoken out against the Single Market while seemingly knowing very little about it. He ranted against the 2001 Clinical Trials Directive, apparently oblivious that it is in the process of being replaced by the 2014 Clinical Trials Regulation. He has been obsessed with the Procurement Directive, with no understanding of its roots in the WTO Agreement on Government Procurement.  He has bizarrely defined the Single Market as including the Schengen area and the euro. We do not want a prime minister who, on the basis of this ignorance, pulls us out of the Single Market and thereby rejects a sensible, staged secession.

Michael Gove has denied that Cummings will be straight into Downing Street should be prime minister, but then he also denied wanting to be prime minister. Either way, this is the man he has had closely advising him for years. In the aftermath of the vote the lies of his campaign, and his deliberate rejection of post-referendum planning is unfairly damaging the credibility of Leave and feeding the Remain backlash.

Seceding from the EU is grown up politics that needs informed expertise and moderate thinking. We have to accept that leaving the EU is going to be a long process, we cannot achieve everything at once and that we must compromise to get a settlement. Whatever agreement we reach will be a transitional arrangement and a platform to build on; I have serious doubts about Michael Gove understanding and accepting this wholeheartedly.

The Gove negotiating strategy has been set out; he is prepared to put our economy at serious risk in exchange for an immediate end to free movement. With Gove as prime minister the EEA option is dead. The majority of leavers voted on the issue of self-governance and the vast majority of remainers voted out of concern for the economy. The EEA option is a settlement to reconcile these differences and resolve the Northern Irish question, the Gibraltar problem and ease the concerns of Scotland.

If we want to be in a “free trade zone” in Europe it is the European Economic Area or nothing; and that is why Michael Gove is a real threat to an economically secure transition out of the EU. We can try and begin negotiations over a bespoke trade agreement but there is very little chance of reaching a conclusion within two years and very serious economic and political consequences for the UK and the eurozone if we fail.

We need a candidate who will be firm but understands the necessity of compromise. This is a time for pragmatists willing to work with our European partners on a strategy of transition management. This is not a time for ideologues and zealots.

Follow Ben on Twitter: @thescepticisle

02/07/2016 link


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