The Prosperity UK Alternative Arrangements Commission, which launched earlier this week, is a serious attempt to address the complexities of the Irish border and break the Brexit logjam. Co-Chair Nicky Morgan and I have decided to take an entrepreneurial approach to solving the conundrum of the Irish border, and ask the private sector for its help.

Our starting point is to find out what is possible by asking a panel of technical experts to develop credible Alternative Arrangements for the Irish border, which can be delivered in a timely fashion, and without the presence of physical infrastructure at the frontier.

The Commission will be made up of a broad spectrum of MPs and Lords, representing many different views on Brexit. The Commission is agnostic on the preferred future relationship between the UK and EU. Our work will be compatible with virtually all of the EU-UK end states currently under consideration and will ensure that the UK retains full flexibility in its future negotiations with the European Union.

There are three common misconceptions about Brexit which are relevant to the Commission.

The first is that Alternative Arrangements will not be necessary. But in every single scenario bar staying in both the EU Customs Union and the Single Market, for goods and agrifood, alternative arrangements of some kind will be necessary. And if we are in that scenario, we would have no ability to execute an independent trade policy or improve our domestic regulations, taking away all the potential economic gains of Brexit.

It is not well understood that free circulation of goods comes from both the Customs Union (CU) – and the rules of the Single Market. If the UK were a full member of the EU Customs Union, this would only address rules of origin. Checks would still be needed on animals, animal products (including processed food), plants and plant products. Technical regulations and standards that define specific characteristics of a product would also require checks. If the UK was in a CU, not the CU (like Turkey), the UK would need movement certificates for all relevant goods. For these very reasons, a customs union on its own does not solve the Irish border question.

Let us look at some of these potential scenarios:

  • Membership of the EFTA/EEA? We will need to prove origin, and consequently, there will be customs checks.
  • Membership of a Partial Customs Union? We will need movement certificates and there would need to be checks for standards, TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary) issues.
  • A Customs Union and EEA? We would still need movement certificates and some customs checks.
  • A comprehensive Free Trade Agreement between the UK and the EU? Yes, this will require the complexities of the Irish border to be addressed.
  • But what about leaving on WTO terms, a so-called ‘no deal’ scenario? Leaving the EU without a deal doesn’t absolve us from finding a solution to the Irish border. If anything, it makes it more important.

The second misconception is that there is no majority in Parliament for any Brexit alternative. But as avid BrexitCentral readers will know, the Brady Amendment was the only amendment during the recent Brexit debates to gain a parliamentary majority. Central to the amendment was the need to come to an agreed path on alternative arrangements for the Irish border.

The Alternative Arrangements Commission is – and was designed to be – a broad church. We welcome any parliamentarian who is committed to finding a workable solution to the Irish border, which means the UK can leave the EU.

The third misconception is that Alternative Arrangements for the Irish border would be a hi-tech unicorn, dreamt up by some futurologist in Silicon Valley and which would take years to develop. To that, I say, no, absolutely not. We are seeking solutions based on existing, working technology and processes. There just has not been sufficient practical work done on this by the Government or anyone else. And whilst this lack of work is regrettable, it does no good to look backwards.

The Commission has engaged a Technical Panel comprising border and customs experts, practitioners and lawyers with detailed knowledge of Ireland as well as the EU, UK and international trade regulations in order to create draft processes and procedures to fulfil our goal. In addition, the Commission will engage with established technology providers in order to develop a comprehensive set of solutions and timelines for review.

The Technical Panel will address the most challenging aspects of the Irish border including small traders, tax issues, security and movement of people, trusted trader schemes, rules of origin, financial settlement and issues relating to Sanitary and Phytosanitary Measures (i.e. treatment of food and plant-based goods).

The Commission is seeking solutions that are both realistic and sustainable and recognises that their formulation and implementation will require the engagement of many stakeholders in the UK, the Republic of Ireland and Europe. Central to the proposals will be a commitment to protecting the Good Friday Agreement.

There are no easy answers with Brexit, but I hope this Commission into Alternative Arrangements is the impetus for finding both the technical solutions and the political consensus for a deal with the EU. We owe it to the country, and Northern Ireland in particular, to do everything we can to create a seamless border in Ireland. Just because it has not been done before, does not mean it is impossible.

Anyone wishing to offer their expertise or to make a submission to the Commission can do so by emailing Greg Hands.

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As we approach either 12th April or 22nd May 2019, it is worth recalling the chain of events which has led to where we are now.

The 2016 referendum produced a 52% to 48% majority in favour of Leave which the Prime Minister’s Lancaster House speech in January 2017 proposed should be implemented by the UK leaving the EU’s Single Market and the Customs Union and negotiating a free trade deal along the lines of the CETA negotiations between Canada and the EU.

With over two years to go between January 2017 and March 2019 and a model agreement between the EU and Canada on which to draw, a starting point of 100% alignment and indications from the EU that they thought that this was a viable way forward, the omens for a reasonable outcome being achieved looked relatively promising. The result of the 2017 general election, however, fatally undermined this relatively benign potential outcome.

This election was called by the Prime Minister with the intention of strengthening her majority in the House of Commons, to achieve the best chance of a smooth passage through the House of the necessary legislation to implement her Lancaster House proposals. Unfortunately, from her point of view, the outcome was the opposite to what she planned. The Conservative majority in Parliament disappeared, leaving the Tory Party dependent on DUP votes to provide it with a working majority.

Although all the Labour and Conservative Members of Parliament elected in 2017– over 80% of the total numbers of MPs returned – had stood on manifesto promises that they would implement the referendum result, there was a large majority – between 75% and 80% of MPs elected – who were of a Remain persuasion. They were not prepared to contemplate proposals along the Lancaster House lines. They were determined to keep the UK much more closely involved with the EU. Specifically, they wanted to remain at least partly in both the Single Market and the Customs Union.

It was trying to maintain free movement of goods within the Single Market framework and attempting to stay within the Customs Union, particularly to avoid a border problem between Northern and Southern Ireland, which led to the Withdrawal Agreement which Parliament rejected in January and again early in March. The EU were always uncomfortable with the UK being partial members of the Single Market and the Customs Union for understandable reasons. Maintaining the four freedoms – the movement of goods, services, capital and people – was a prime EU objective.

Understandably, the new UK aspirations were regarded by the EU as a serious threat to their security and integrity. The situation was further muddied by the UK agreeing to discuss citizenship, the Irish border and money before trade. This led to the Government getting desperate by late 2017 to get the trade negotiations going, leading to the UK conceding the Irish backstop arrangements in December 2017 which eventually got into the Withdrawal Agreement. The overall result was an Agreement so unsatisfactory to the UK that when a vote was held on it in January 2019, it was voted down by an unprecedented majority of 230, with a lesser but still large majority of 149 against it in early March 2019.

The problem is that rejection of the Withdrawal Agreement has left the House of Commons with no majority for any of the various possible ways ahead – as we saw confirmed last night – and a very short amount of time to get anything settled. Support for the so-called Norwegian option – with the UK in the EEA and EFTA – seems to have melted away. No majority in Parliament exists for a second referendum, which has recently been voted down by a majority of 249. A large majority exists for avoiding “No Deal”, but this eventuality can only be stopped if there is some concrete alternative in place, and it is far from clear what this might be.

It is obviously far from an ideal outcome for the UK to be drifting towards “No Deal” – the default outcome if nothing else is agreed before 12th April 2019 – with far too little preparation for it having been arranged and with no longer-term plans for this type of outcome as a favoured option having been made. Much then turns on a realistic assessment as to how disruptive and difficult “No Deal” would be.

Among some people – including evidently a substantial number of MPs – there appears to be an assumption that “No Deal” would be so damaging that it is not worth even trying to make a detailed assessment as to how difficult the situation might be and whether “No Deal” might be better as an outcome than the Withdrawal Agreement. There is little doubt that there would be disruption at least for a while, with some sectors of the economy much more adversely affected than others. Overall, however, especially if mitigated by a significant number of mini-deals on such key issues as flows of traffic at Dover and Calais, aircraft rights of movement, supplies of medicines etc, it seems likely that the challenges to the economy would be manageable.

There are also a number of significant upsides to “No Deal”. We would not be committed to paying the EU £39bn with no clarity as to what we would receive in return. The Irish border problem would have to be resolved by allowing trade to take place electronically for large companies and with exemptions for small ones, assuming that no-one wants a physical border. There would be no restrictions on the UK negotiating free trade deals. The huge trade deficit we have with the EU should put us in a reasonably strong position to negotiate a free trade deal with the EU on satisfactory terms. At the moment, however, Parliament has voted by a large majority against “No Deal” as an option that it is prepared to accept, although it remains the default outcome if nothing else is agreed. Whether it was wise to relinquish at this stage such a vital negotiating card with the EU remains to be seen.

If there is not going to be a “No Deal” exit from the EU by the UK on 12th April 2019, a further extension of Article 50 now seems inevitable. Unlike repealing Article 50, which could be done unilaterally by the UK, extensions require the unanimous assent of all 27 EU Member States and the European Parliament, whose last sitting date before its forthcoming elections is 18th April 2019. If there is any kind of deal agreed before 12th April 2019, a short extension would be necessary to provide time for passing the necessary legislation to make the deal effective. If the Withdrawal Agreement is not agreed, however, the EU is likely to insist on a much longer extension, possibly for as long as two years or more. They are also likely to try to make any such a delay conditional on the UK either holding a general election or a second referendum, although it is difficult to see how Parliament could be bound to follow through on any such undertakings if it was minded not to do so. During this period, the UK would remain in the EU and we would very probably be obliged to take part in the European Elections taking place in May 2019.

Postponement of any final decision on the UK’s fundamental relationship with the EU for a period of years would deal with the immediate problems faced by companies trading between the UK and the EU. It would maintain the status quo on the wide range of arrangements we have in place with our European neighbours, but it would also have heavy downsides.

It would inevitably prolong the uncertainty hanging over our relationships with the EU. A further long period of potentially acrimonious negotiations would be in prospect, providing a continuing major distraction from other pressing priorities. It is not clear that a general election would produce a parliament any less split than the one we have already, and therefore in a better position to negotiate a deal more generally acceptable than the one enshrined in the Withdrawal Agreement.

Another referendum would also be fraught with all the problems which caused it to be voted down as a way ahead in March 2019. Apart from concerns about its democratic legitimacy, it looks like being foisted on a government which would not want a referendum, with all the difficulties that this would entail in terms of getting the necessary primary legislation onto the statute book. There are also obvious problems around delay, uncertainty, cost, what the choices to be put to the electorate would be, let alone the impact on the country which a highly contentious referendum would entail – and with no certainty about what the result might be.

Faced with all these difficulties, what should the country – and particularly the Labour Party do? There are essentially four options ahead of us, whatever processes and procedures we may have to go through to get there. We either:

  • accept the Withdrawal Agreement or some close variant to it
  • rescind Article 50 and remain in the EU
  • leave the EU without an agreed way ahead
  • accept a much longer extension to provide time for a new approach

The vast majority of Labour MPs would undoubtedly like to see the second of these options as the eventual outcome. So would most Labour Party members. Traditional Labour voters, however, would be much more evenly split and a lot of these people live in marginal seats in Wales, the Midlands and the North.

Few Labour MPs, party members or voters are happy with the Withdrawal Agreement. While the electorate as a whole now seems much more inclined to go for “No Deal” than they did before, this is not an outcome favoured by either the Labour Party leadership or by the majority of Labour MPs.

What do Labour sceptics grouped round Labour Leave think should be done? We think that accepting the Withdrawal Agreement is an even worse option than staying in the EU and that there is less to fear from “No Deal” than most people in Parliament seem to think. At the very least, therefore, we think that “No Deal” is an option which should be kept in play. We still believe, however, as we always have done, that as comprehensive as possible a Canada+++-style free-trade deal between the UK and the EU, with the UK out of the Single Market and the Customs Union and the Common Agricultural and Common Fisheries Policies, would be the best outcome. This is why we think that extending Article 50 to give us time to negotiate a comprehensive free-trade deal is now the best long-term way ahead, providing both Leavers and Remainers enough of what they want to lead to an acceptable and permanent settlement.

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TheBetter Brexit’ website provides a clear explanation of the proposal known as ‘Common Market 2.0’, or ‘Norway Plus’, which is being pushed hard as a solution to the current impasse in parliament. However, it also exposes the fundamental weaknesses of this plan. Rather than being a reasonable compromise, my fear is that it would simply end up as a capitulation to those who never wanted the UK to leave the EU in the first place. In summary, the proposal is that the UK should join the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway and Switzerland, as a stepping stone to membership of the European Economic Area (EEA), which extends the EU’s Single Market to non-EU states.

At the same time, the UK would negotiate some form of ‘comprehensive customs arrangement’ – in effect a new customs union – with the EU. Some supporters of Common Market 2.0 anticipate that this customs union would only be temporary until something else can be agreed that prevents the need for a ‘hard border’ in Ireland. Others clearly hope that the arrangement would be permanent. Either way, this is the ‘Plus’ in ‘Norway Plus’, as Norway itself is outside the EU Customs Union.

So what’s not to like? First, and most obviously, Common Market 2.0 would be Brexit in name only. Its supporters are seeking a deal that includes full participation in the Single Market, plus a customs union. That would surely be inconsistent with the vote to leave the EU. We can of course debate exactly what people wanted in 2016 until the cows come home. However, as the Prime Minister and the government have repeated said, “the agreement we reach with the EU must respect the referendum. It was a vote to take control of our borders, laws and money”.

Common Market 2.0 surely fails all these tests. On borders, even supporters acknowledge that the continued membership of the Single Market would require freedom of movement. In principle, the UK might gain some additional powers to take ‘safeguarding measures’ to control immigration and the rights to work and claim benefits, but only in an emergency and even then still limited in both scope and duration. These powers would add very little, if anything, to those that the UK already has as a member of the EU.

On laws, the UK would still be subject to the bulk of EU rules and regulations, with even less influence than it has today. EFTA members are required to adopt any measure related to the Single Market into their own domestic law, without any seats on the European Council or Parliament, and only limited participation in the activities of the Commission.

Admittedly, the UK would regain control in some important policy areas, including justice and home affairs, foreign and security affairs, and taxation. If following the Norway model, the UK could also quit the Common Agricultural and Fisheries Policies. But these potential gains have to be set against the loss of influence in many other fields. In particular, the UK would effectively become a rule-taker on services, and especially financial services. This would, in the words of Bank of England Governor Mark Carney, be ‘highly undesirable’.

Supporters of Common Market 2.0 like to emphasise that the UK would no longer be subject to the direct jurisdiction of the ECJ and would be overseen by the EFTA court instead. But this would only be a symbolic change. In practice, the EFTA court follows the ECJ closely and interprets the EU rules and regulations in the same way. And while EFTA rulings are not legally binding on member states, there would be significant political costs if the UK tried to ignore them.

On money, the UK would be expected to continue to make large contributions to the EU budget. The sums would be smaller than as a full EU member, but still substantial. Supporters of Common Market 2.0 note that the UK’s per capita contributions would probably be lower than those of Norway. However, this would only be because Norway’s per capita GDP is much higher. What’s more, Norwegian officials have emphasised that the UK cannot expect a better deal than Norway itself on any of the key points, whether borders, laws, or money.

This is all before considering the ‘Plus’ in ‘Norway Plus’, namely some form of customs union with the EU. As it happens it is hard to see how this could be compatible with joining EFTA, whose existing members do not participate in the EU Customs Union. Indeed, it is surely significant that two large economies, Norway and Switzerland, have chosen to remain outside the Customs Union, despite the alleged benefits of joining.

Even if the technical problems can be overcome, membership of a customs union with the EU, combined with the loss of regulatory independence from remaining in the Single Market, would all but eliminate the UK’s ability to do its own trade deals with the rest of the world. The UK would also have no real influence over the trade deals that the EU might do with other countries, who would then gain preferential access to our markets with no guarantee that the UK would get anything in return.

That should certainly be a red line for Tory MPs elected on the basis of the 2017 Conservative Party manifesto, which stated that “we will no longer be members of the single market or customs union…” and “leaving the European Union also means we will be free to strike our own trade agreements with countries outside the EU”. There is also a significant risk that the EU would make continued participation in a customs union conditional on the UK remaining part of the Common Agricultural and Fisheries Policies too.

To be fair, many supporters of Common Market 2.0 recognise these problems, and some have suggested it might just be a temporary arrangement (‘Norway then Canada’, or ‘Norway for now’), until the UK can negotiate a better deal. But there is an obvious danger that it becomes permanent, given the coalition of forces still trying to overturn the 2016 referendum, or only pay lip service to the result. It may also be harder to convince existing EFTA members to commit a lot of effort to new arrangements that might only be temporary.

In short, rather than Common Market 2.0 being ‘a Brexit deal everyone can support’, it is hard to imagine anything worse.

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So, we finally come back to the starting point, back to square one. Parliament now faces the very same choice that the electorate faced when they placed a cross on a voting paper nearly three years ago, way back in 2016: Leave or Remain.

There is nowhere for MPs left to hide. All prevarications, deviations and diversions have failed: a second referendum comprehensively defeated; a Norway 2.0 type deal, EFTA membership and a customs union all thrown out; every attempt to derail Brexit decisively rejected. Also rejected is a no-deal departure. Bit by bit, Brexit has been stripped back to its bare bones much like a tree stripped of its branches and its bark right down to its core, its fundamental element; Brexit stripped to its beautiful simplicity: Leave or Remain.

The attempt by Speaker Bercow to prevent the Government bringing a ‘substantially same’ deal back to the Commons will make little difference. It is not the big spanner in the works that many Remainers hope it is; it will only delay a third meaningful vote to within a day or two from the default departure date which will only bring the stark choice facing MPs sharply into focus.

Theresa May’s deal may or may not be the disaster that the European Research Group say it is, but it remains the only vehicle through which the UK could leave the EU on or soon after 29th March. A delay beyond 30th June would be a betrayal for it makes no Brexit the only possible outcome. The option of voting against the deal because it’s not good enough is a kamikaze option: it serves no purpose other than keeping some MPs’ hands clean and their conscience pure.

The argument that being so close to 29th March, and that rejecting May’s deal at a third meaningful vote will leave no time for the necessary primary legislation to prevent the UK leaving without a deal, is far-fetched and reckless. In normal times, such restraints may prove effective; but we are not living in normal times. Given the will, and there is indeed a strong will among MPs, to stop a no-deal Brexit, Parliament will conjure up special emergency procedures to ensure the UK will not leave without a deal and the Speaker of the House will be more than willing to help.

A glimpse of a rethink was detected when Jacob Rees-Mogg asked the Attorney General if a different Parliament could unilaterally withdraw from the Withdrawal Agreement. The reply was clear and unequivocal, a sovereign nation can unilaterally withdraw from a treaty if it no longer meets its national interest. Other eminent lawyers may disagree as lawyers invariably do, but what is not in doubt is that untrammelled powers are bestowed upon countries once they become sovereign. This may be the start of a softening of the ERG’s approach to the deal. An all-or-nothing stance is the strategy of the desperate and the defeated. But the British people are neither desperate nor defeated. They know this deal is not so much an end but a start, a new start for Britain. What is done today can be undone tomorrow and what we agree to today can be changed tomorrow as the balance of forces tilts in our favour once we are out of the EU.

Sovereignty will bring to an end the chess game we’ve been engaged in with the EU and with all the pieces back into place, we’ll embark on a new match. The electorate has been steadfast in its determination to leave the EU, and so must their representatives in Parliament, especially those who campaigned to Leave and those who were the official leaders of the Leave campaign. They must make certain that the result of the referendum is honoured and that the UK leaves the EU.

The support of the DUP is important but no decisive. More decisive is the attitude of Labour, for the deal will not pass the Commons without support from Labour. Labour has as much responsibility as the Tories to facilitate Brexit, both its individual MPs and the party leadership – and Jeremy Corbyn has the greatest responsibility of all.

So far, Corbyn has managed to ensure that when it mattered, Labour did nothing to derail Brexit. No doubt an amendment promoting an alternative basis for a deal with the EU and another calling for an affirmative public vote on May’s deal if Parliament were to agree it will be put forward. But once these amendments are defeated – as they are bound to be – Labour will have to consider its attitude towards the deal itself, the only deal on the table. It is at that point that the Labour leadership must assert its authority, stand by its promise to respect the result of the EU referendum and ensure it goes through; there is no other honourable position for the Labour Party to take if it is to keep faith with its supporters and the country at large. Enough Labour MPs, whipped or otherwise, will support it or abstain to ensure its safe passage.

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As Parliament debates the Withdrawal Agreement, there have been calls for the UK to continue its membership of the European Economic Area (“EEA”) as an interim step before progressing to a more usual free trade agreement arrangement.  This has been called ‘Norway then Canada’. It is also now emerging as a potential Plan B in case the Prime Minister’s (PM) deal fails in the Commons. We first look at the mechanics by which continued EEA membership might be achieved, and then go on to describe the reasons why remaining as a member of the EEA even for a short period would be damaging to the UK. Far from being a compromise, the EEA option even without the Customs Union attachment (the plus of Norway plus) is even more restrictive for the UK than the PM’s deal.  

Liam Fox testified to this effect in the International Trade Committee on December 5th where he stated that “In many ways it closer to EU membership than the agreement being put forward today. I find it unbelievable that those who can’t agree with the current agreement put forward by the government would want EEA or EFTA status.”

There are three variations to the EEA model:

    • Not joining the European Free Trade Association (EFTA) and ‘continuing’ as party to the EEA Agreement
    • Joining EFTA, and then becoming party to the EEA Agreement as an EFTA member
    • Joining EFTA as an Associate Member and then becoming an EFTA party to the EEA Agreement.

The EU would still claim all of these options require the UK to remain in a customs union with the EU to avoid a ‘hard border’ in Ireland.

All of these options require other parties to concede to the UK’s actions, whether in joining EFTA, or renegotiating the EEA agreement.

But time is running out for these negotiations and there is currently little evidence of political will.

Variation one (non-EFTA) can be discarded as the EEA Agreement is explicit about only applying to EFTA or EU members.  This is not easily altered as it is built into the ‘institutional provisions’ of the EEA Agreement. The EU could still claim there needs to be a backstop in the event that the UK eventually leaves to pursue a ‘Canada +’ deal.  

Variation two precludes membership of the Customs Union, as EFTA members must apply to become party to all EFTA Free Trade Agreements (FTA). Article 50 does not give the EU competence to negotiate this with an existing member state. Britain would need to leave the bloc first.

Variation three would require a renegotiation of the EFTA convention, and it would not be guaranteed that a new ‘associate member’ would be allowed into the EEA by the EU. As with option two, Britain would need to leave the EU and then negotiate this.

Even if the legal and political difficulties could be surmounted, all of these options simply delay the process of leaving, creating additional work in the interim for businesses, without dealing with uncertainty over the final arrangements.  The difficulty of leaving current arrangements demonstrates how challenging it would be to move out of EEA membership once in.

Once in, there are also further difficulties:

  • The UK would be unable to end free movement.
  • The UK would not have regulatory autonomy, and this would make any serious trade policy with countries like the US, or Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) accession impossible. This is because the UK would be unlikely to commit to the regulatory provisions of CPTPP given we would not have control over our regulatory system, and any deal with the US would fall at the first hurdle because we would not be able to offer regulatory concessions; especially on goods and agriculture.

 

Part 1 – Getting in

  • The Proposal

This proposal appears to be a rebrand of an idea promoted by some MPs in spring this year: joining EFTA in order to accede to the EEA Agreement. The re-brand proposes that joining EFTA and remaining in the EEA for a time could replace the “implementation period” under the Withdrawal Agreement currently being negotiated by the EU and the UK.  It would enable the UK to negotiate and transition to a more usual state to state free trade agreement with the EU, often called “Canada +”. Variations on this theme include not joining EFTA because our membership of the EEA Agreement will continue as we are a contracting party in our own right, and becoming an ‘associate member’ of EFTA.

EFTA membership (currently comprising Norway, Iceland, Switzerland, and Liechtenstein) does not by itself give continued preferential single market access.  EFTA is a free trade agreement between its parties. The link with the EU for EFTA countries requires signing the European Economic Area (EEA) Agreement, as Norway, Iceland and Liechtenstein have, or negotiating separate bilateral deals as Switzerland has done. For the purposes of this briefing we will concentrate on the EEA route, which its proponents consider to be an off the shelf route to achieving continuity and frictionless trade, as we continue our negotiation for a bespoke free trade agreement.  

 

  • Option 1 – Remaining in the EEA

First, let’s address the variation under which we simply rely on being a member of the EEA Agreement at present and do not give notice to withdraw.  This assumes that because we are named as a party to the agreement, the rights and obligations under the agreement must continue whether or not we are a member of the EU or EFTA.  Given the wording of the EEA Agreement, it is clear that this is not the case. It is specifically stated to apply only to the territories of the EU and the EFTA parties, known as the two pillars – the EU pillar and the EFTA pillar. The provisions that deal with managing and decision making under the agreement, the so-called “institutional provisions” are expressly designed to create a balance between the EU pillar and the EFTA pillar. The EFTA Secretariat is of the view that these provisions would not allow the UK to continue as a functioning EEA party in its own right.  In its FAQs on its website it states the following:

Article 126 of the Agreement on the EEA makes it clear that the EEA Agreement only applies to the territories of the EU, in addition to Iceland, Liechtenstein and Norway. Under the present wording of the EEA Agreement, it is therefore impossible to be a party to the EEA Agreement without being a member of either the EU or EFTA.

Even if the UK government were to change course and seek to claim that the UK’s membership of the EEA Agreement continues unabated by having left the EU, if the other parties don’t agree we would be caught up in protracted negotiation and even potentially litigation.  Given the current state of negotiations, such a change of course would not, one imagines, be popular with the EU and EFTA members.

 

  • Option 2 – Joining EFTA

So why not join EFTA and then accede to the EEA Agreement in the normal course?  This is not an off the shelf model. Membership of these agreements is not available as of right.  It must be applied for and conditions must be met. Although both EFTA and EEA membership can be terminated on 12 months’ notice, neither envisage temporary membership (other than in order to move from EEA membership into full membership of the EU).   It is highly questionable that the four EFTA members, all of whom would have to agree the UK’s accession to EFTA, and then the 27 EU member states who would have to agree the UK joining the EFTA group of the EEA Agreement, would agree such a disruptive process and time consuming negotiation in the knowledge that it would only apply for a period of two or three years.  A more recent iteration of the Norway then Canada model proposed by MP Nick Boles concedes this and proposes that the UK would agree not to exercise its right to terminate EEA membership “while the EU is working in good faith to conclude a new set of agreements that preserve in perpetuity no hard border on the island of Ireland”.  The prospect of ever leaving the EEA in that scenario seems vanishingly small, given that the effort to guarantee no hard border in perpetuity is exactly what has led us to the current impasse as the EU claims there is no way to achieve this without Northern Ireland remaining in its customs union and internal market for goods.

In any event there is not enough time to negotiate EFTA membership and transition to the EEA pillar of the EEA Agreement before 29th March 2019. This would require new negotiation guidelines to be agreed by the EU27 and ratification, by the UK, all the EFTA states, and all EU Member States. Relevant schedules and governance arrangements would all have to be renegotiated if the UK wished to be able to have any special arrangements to reflect our circumstances, for Gibraltar, for example or for the needs of financial services or other sectors.    Even if there were the political will to do so (which seems unlikely for a time limited arrangement), in practical terms the process could not be completed to take effect as a transition. The prime minister of Norway has already indicated that the interim membership approach would not be welcomed by the exiting members, noting that “to enter into an organisation you are preparing to leave at the same time is also a little bit difficult for the rest of us”.

There is a more serious obstacle before any such negotiations could even be contemplated.  The EU’s position is that it cannot negotiate such agreements with an existing member state, as Article 50 does not give sufficient competence and the other relevant provisions of the EU treaties do not cover negotiations with current EU members.  Many commentators consider that the boundaries of article 50 have already been strained beyond its limits by including in the Withdrawal Agreement an ongoing customs union and single market arrangement for Northern Ireland, and even more extending this to the whole of the UK, even on a temporary basis, and even as a backstop.  It would be very difficult for the EU to stretch this further and re-negotiate the EEA Agreement under Article 50 and doing so would almost inevitably be subject to legal challenge, making it risky and uncertain.

This means that to join the EEA, the UK would have to leave the EU with no deal in March 2019 and continue negotiations for the future relationship.  This takes away a large part of the claimed benefits of the EFTA/EEA model, as the disruption from leaving with no deal would already have happened and it would be more sensible at that point to focus on bilateral negotiations with the EU and wider trade policy.

The other critical reason why the EEA route does not resolve the current impasse is that whether it is temporary, permanent or indefinite, an EFTA/ EEA arrangement does not resolve the issues that the EU has raised in respect of the Irish border. EEA membership does not comprise, and in fact being an EFTA member precludes, membership of a customs union, so there would still be customs formalities for cross border trade between Ireland and Northern Ireland.  The Norway Plus proposal which includes a Customs Union removes all independent trade and regulatory policy.

The solution in the draft Withdrawal Agreement includes the whole of the UK remaining in a customs union with the EU. This is incompatible with the EFTA Convention, which prohibits customs duties and quantitative restrictions between members (which the UK could not commit to if it were bound to the EU’s tariffs, quotas and trade remedies) and binds acceding members to apply to become party to FTAs concluded by EFTA Members. The UK would not be able to do this if in a customs union with the EU, it could only enter into FTAs with countries that the EU has FTAs with, and only on the terms agreed by the EU.

 

  • Option 3 – Associate EFTA membership

It has also been suggested that we could work around the need to be an EFTA member to join the EEA Agreement in the EFTA pillar by becoming an “associate member” of EFTA.  This would presumably be intended to allow the UK to be in a customs union with the EU but still an EFTA member for the sake of EEA Agreement formalities. Let us be clear that there is no such thing as associate membership of EFTA.  The EFTA Convention provides for the creation of an association between EFTA and any other country or body in agreement with reciprocal rights and obligations, common actions and procedures.  This is not a form of membership.  It would be open to the EFTA members and the UK to create a form of associate membership if they wished, but this would be a matter of negotiation between them, requiring amendment to the EFTA Convention and they would not be able to compel the EU to recognise such associate status as qualifying for the EFTA Pillar of the EEA Agreement as of right.

While we know that it is in fact possible to attend to these matters without physical infrastructure or the routine interventions at the border, this has not been accepted by the EU side to date. An EFTA/EEA solution does not appear any more viable for the whole UK than a normal (“Canada-style”) FTA is, given the EU’s current negotiating position. The EU’s insistence on the backstop as a commitment that would apply in perpetuity  means that even EEA membership and a customs union would not remove the perceived need for the backstop: the EU would wish to be able to trigger the protections they consider necessary for the Irish border if in the future the UK gives notice to leave the EEA or customs union, or both, and the EU side does not consider that the border arrangements meet its requirements.

Even if it were politically and practically deliverable, the Norway then Canada proposal would make life harder, not easier, for business. It would mean another system they would need to understand, in between EU membership now and fully leaving EU regulation, later.  This would suggest that, even if the EU were satisfied on the Irish border, the eventual move out of the ‘Norway phase’ would be met with as much resistance as leaving the EU is encountering at present, and would in fact never happen. The same cliff edge arguments would be made by the CBI and others if we were ever to choose to leave the EEA, and the political forces in the UK would conspire to ensure that the UK did not trigger the notification provisions.  Once in, it is extremely unlikely that we would leave, especially since being in would eliminate our independent trade and regulatory policy completely so none of the benefits of Brexit could be realised.

Continuity EEA Membership in own right EFTA Pillar UK bespoke EEA Membership EFTA Associate Membership
Is it Available No Yes No No
Is it Negotiable No Possible, but only if not in customs union and likely with with major concessions, for example on fisheries Unlikely Unlikely
Is there Time No No No No

 

Part 2 – Why would we want to be in?

 

  • Control of Laws

What is the EEA? Well according to the EEA Agreement itself, it is an association formed to “promote a continuous and balanced strengthening of trade and economic relations between the Contracting Parties with equal conditions of competition, and the respect of the same rules, with a view to creating a homogeneous European Economic Area”

Already we can see some big clues as to why continuing to be part of this arrangement would not achieve the objective of taking back control of laws, and why, even if intended to be for a short period, it would be damaging to the UK’s interests.  In order to achieve the “same rules” and “homogeneous” conditions, the EEA Agreement provides for the EU to harmonise laws in in-scope fields with the EFTA EEA members. This is monitored by the EFTA Surveillance Authority and enforced through the EFTA Court, which broadly follows the rulings of the European Court of Justice.

EFTA EEA members have to adopt EU laws that are marked as “text with EEA relevance” into their laws.  This is not optional – there is no veto and they have no vote in the European Council or Parliament. Norway’s prime minister has said clearly “We do accept that decisions on the four freedoms are done in Brussels”. It is often claimed that the EFTA EEA countries can shape and influence EU laws as they are consulted at an early stage in the law-making process.  Although the EEA Agreement provides for consultation and communication at the early stages of formulating single market legislation, in practice, as described by the European Parliament, EFTA countries “have little influence on the final decision on the legislation on the EU side”. If an EFTA EEA country does not implement an in-scope EU rule into their law, the EU will take action against them, as Norway found out when it tried to get out of implementing a directive on postal services and was threatened with losing market access for its fisheries products.  As a result, the right of reservation in the EEA Agreement has never been used, and is, in essence, a theoretical construct that allows EFTA EEA states to respect their constitutions and claim that democracy is respected.

This illustrates the severe immediate political costs of even temporary EEA membership without a known end date (which as explained in Part 1 is unlikely to be negotiable so indefinite membership is the more likely scenario, which is of course even worse). Think about how this would work in the context of issues that are important to the UK economy.  EU financial services regulations are “text with EEA relevance” so EFTA EAA members are obliged to implement them. We know that the stated aims of many EU member states to win business away from the UK, and we know that the direction of travel of EU rules in financial services has been towards greater levels of intervention and integration, often in ways that have been detrimental to the UK even while we were a member. So, imagine what EU member states could do with regulation in this area to undermine the competitiveness of the UK market, knowing that the UK us obliged to accept it, with no real voice in the process.  Solvency III? MiFID III? And if our Parliament were to resist, the EU would be able to respond by withdrawing market access not just in financial services, but in unrelated fields like food or automotive. This is why firms and industry bodies in the City have moved on from prioritising passporting rights in the single market. Groups like UK Finance and the CityUK realise that the risks from being regulated from Brussels with no vote or voice is worse for the future of financial services in this country than the loss of passporting rights.

 

  • Control of Borders

Another issue that is of vital interest to the British people is immigration.  Free movement of workers is a fundamental part of the EEA Agreement and EFTA EEA members are subject to all the EU legislation supporting it.  It is unrealistic to suggest that a Lichtenstein-style immigration control could be agreed, or that the UK government could simply make better use of the controls on free movement that are already available.  The movement of workers safeguards are designed to apply in emergency situations. Liechtenstein was able to negotiate an enduring safeguard due to its unique position with a tiny population and mainly rural geography.  It was made clear to David Cameron during his attempted renegotiation before the referendum that the EU does not consider that the UK is encountering any difficulties that would justify deploying such emergency measures.  It is also clear that the existing controls that allow member states to remove immigrants from EEA countries who do not meet the criteria of being a worker or economically self-sufficient cannot be effectively used by the UK unless we introduce registration and identity systems (which would have to be for UK nationals as well as immigrants, otherwise they would be discriminatory) and make access to welfare benefits and healthcare much more rigorous.  These would be serious changes to the way we run the country and, in many respects, would operate directly against the concerns of many voters.

 

  • The Policy Implications

The UK cannot cherry pick its model as a member of the EEA.  The foundational principle of the EEA and its institutions is homogeneity of regulations and their application across the single market.  And the direction of travel is towards more areas becoming more integrated. Iceland’s finance minister recently said “Those that are for integration are stepping up the pace and if that is realised there will be even less tolerance for special implementation in the European Economic Area”. Carving out special treatment for sectors or to deal with movement of workers would mean seeking to reverse this and undermine the principle of homogeneity.  Why would the 30 EEA members agree to unbalancing their relationship and destabilising established structures for the UK, especially if they think we will leave in a couple of years?

The impact of EEA membership on financial services and immigration alone should kill it stone dead (even if the basic argument for democracy and accountability in who makes our laws, and how, are not sufficiently persuasive).  Even if the supporters of this model are right that these matters could be satisfactorily negotiated, for example to give UK regulators a voice in financial services regulation, or by allowing the UK a Liechtenstein-style ‘brake’ to cap immigration, there is no way that they could be negotiated in time to take effect on 30 March 2019. But there’s more – what about the impact on the UK’s international trade policy, which the government still claims to want?

If not combined with a customs union, as an EFTA EEA member the UK would be technically able to negotiate free trade agreements in the way that EFTA members do, either individually or as a bloc.  But the FTAs that EFTA countries have are not the kind of comprehensive and truly progressive deals that the UK would be looking for, in particular addressing services and regulatory barriers, because these matters would remain subject to EU laws so could not be negotiated by the UK with other countries. All of the reasons why the EU and the USA were unable to progress the proposed FTA between them (the TTIP) would still apply, and the UK would be even less able to work through them, so a UK/US FTA, one of the great opportunities from Brexit, would be unobtainable.  If we do not have control of our regulatory system, we could not in good faith sign up to the provisions of the CPTPP on regulatory coherence, and the CPTPP countries would not want to have a member that was unable to engage in deeper liberalisation among members including regulatory recognition. Over this we would have no control. UK accession would be like asking CPTPP members to allow the UK trojan horse to smuggle the EU rule book into the CPTPP, something none of its members would want. Even the Japanese, perhaps the most vocal proponent of UK CPTPP accession, partly on the basis that this would encourage the Americans to come back to the table, will understand that allowing the UK in on this basis would repel rather than attract the US.

 

Conclusion

The EEA option will be hard to get into and likely harder still to leave. The Norway phase would also have to be combined with either a customs union, or facilitations for the Irish border that the EU has as yet refused to accept. Such a mechanism would end any pretence of the UK having an independent trade and regulatory policy.  Once inside, the EEA Agreement would prevent the UK from exercising control over its borders and would give control of important areas of lawmaking in services to the EU without the UK having a vote or real influence. The proposal also does not remove the need for a backstop in the future, should the UK seek to leave, furthering the chances that it becomes an accidental end state. This is unlikely to be politically acceptable, given that the EEA has already been rejected as an end point by the Prime Minister due to concerns over the free movement of people and by the City due to the potential for new regulations to disadvantage our financial services industry.  It would more completely take independent trade and regulatory policy off the table than even the PM’s deal. When we referred to the PM’s deal as the worst of all worlds, we did not anticipate that an even worse construct could be seriously being proposed.

The post Why the EEA Model is worse than the Prime Minister’s deal appeared first on BrexitCentral.

Sentiment about a Brexit deal fluctuates wildly almost by the hour. Whatever the current state of speculation, we surely have to prepare ourselves for what happens if Chequers falls over.

I know this is anathema to many Brexiteers. But my personal view is that while No Deal would likely be fine in the long run, in the short term it would be an embarrassing economic fiasco. The consumer story from hell. It would be to Brexit what Gerald Ratner was to cut-price jewellery.

Instead of going down that risky route, I want to ask BrexitCentral readers to consider falling back on the UK’s membership of the European Economic Area. This is the so-called “Norway then Canada” or “Norway for Now” strategy advocated by myself, Nick Boles MP and others.

Please hear me out. It is quite possible that neither Chequers, nor “No Deal” nor trading on World Trade Organisation terms, nor a second referendum will pass in Parliament. In which case, the European Economic Area will be the only thing left on the table. Should we not seize it?

Far from reducing Britain to a “fax democracy”, where we have to pay huge sums into the EU and yet have no say over the rules and regulations passed in Brussels, the EEA is a commercial treaty between sovereign nations and could be a good resting point, outside the EU, the Common Agricultural Policy, the Common Fisheries Policy and the jurisdiction of the European Court of Justice – but with useful legal and economic options. We would effectively be members of the Single Market, but with sovereign protections.

George Yarrow, the Oxford professor who is the intellectual godfather of the strategy, also estimates that our payments to the EU – which would be limited to participating in relevant programmes – would fall from around £9.5bn to £1.5bn.

What is more, we are already contracting parties to the EEA. It is not true, as some have asserted, that we are leaving by virtue of having given notice under Article 50 to leave the EU. The EEA is a separate treaty, which we have signed on our own right, and has its own withdrawal arrangements. If we want to make the EEA treaty operative, all we have to do is to apply to the related European Free Trade Association (EFTA). This is the other “governance pillar” to the EEA.

There is not much the EU could do to stop us exercising our treaty rights without falling foul of a higher law, the 1969 Vienna Convention on the Law of Treaties. Don’t take my word for it. Take the word of Sir Richard Aikens, a former appeal court judge, on the Briefings for Brexit website. If the EU cut up rough, we could take them to the International Court of Justice (ICJ).

As for the infamous Irish backstop, the EEA would put in place the legal structure to make the technical border solution suggested by David Davis work. As we would be members of the Single Market, it would anyway be unnecessary.

On any measure, the EEA is also superior to the proposed transition arrangements. Inside the EEA we would have decision-shaping rights, and also the right to adapt and veto new legislation. We would, anyway, only be in the Single Market which accounts for just 28% of EU legislation.

If, while in the EEA, there was a dispute with the EU, it would be adjudicated by the EFTA Court, on which we would have two out of five judges. Contrary to myth, it is not bound by the ECJ. They do have to develop a homogenous area of law together but frequently the EFTA Court has disagreed with the ECJ.

Nor is it true that we would not be able to control freedom of movement. The EEA Treaty focuses in freedom of movement of workers and includes various measures to impose limits and restrictions, including an emergency break (as used by Liechtenstein). There is no common citizenship and British passports would be back.

Let’s be honest. It isn’t perfect. And it seems to me the biggest risk, which some Brexiteers have already pointed out, is we get stuck. Like Income Tax (introduced temporarily in 1798, it remains with us) the EEA might perpetuate itself. Some have called for a hard legislative commitment to leave before 2021.

However, I would contend that is a glass half empty way of looking at the EEA treaty. The exit mechanism, giving one year’s notice under Article 127, is much more permissive than the Article 50 process. Rather than put a hard stop on our departure date, which creates another cliff edge against UK interests and upsets the Norwegians, we should commit to a review and a break clause to be voted on by Parliament. If it did not work, we could leave to join a Canada-style free trade agreement. And in the meantime it might evolve into a congenial home for us.

The question to which the EEA is the answer is clear. So let me repeat it. What happens if Chequers falls over and the other options are blocked too? It is hard to see any other realistic, legally deliverable alternative. I urge Brexiteers not to rule it out.

The post The ‘Norway for now’ option is far from perfect, but Brexiteers should consider its merits appeared first on BrexitCentral.




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