It’s become a mantra, endlessly repeated by Remainer unions: “Workers must not pay the price of Brexit.” What price would that be? And how about acknowledging the price of staying in the EU?
On 6th July 2017, Michel Barnier, the EU Brexit negotiator, addressed the EU’s Economic and Social Committee. His words were noted and passed on to unions in Britain by the TUC delegate to the committee under a title saying that Barnier ‘spells out the truth’ about Brexit.
Barnier’s address, wrote Unite’s Martin Mayer with doe-eyed devotion, was ‘clinical in its analysis’ and ‘impressive in its clarity’. And he dubbed as ‘fatuous’ Theresa May’s statement that “Brexit means Brexit”. The TUC’s love affair with the EU was still going strong, despite the referendum.
At the meeting Judy McKnight, ex-TUC General Council and ex-General Secretary of the prison officers’ union – described as ‘Leader of UK Workers Group members’ although she is and was actually retired – repeated the worn old refrain that “workers must not pay the price of Brexit”.
The TUC was campaigning back then for Britain to stay in the Single Market for as long as possible, under a transitional agreement, to ‘keep workers’ rights safe’. Now it has hardened its stance, calling for Britain to remain in both the Single Market and the Customs Union.
The Fire Brigades Union, for example, which in June suspended executive member Paul Embery for two years for speaking out in favour of Brexit, parrots every Project Fear statement put out by the Treasury. The union attacks the World Trade Organisation for being ‘neoliberal’ – but of course fails to say that the EU and the USA were trying to negotiate the TTIP treaty because the WTO isn’t neoliberal enough.
Nowhere do these euro-enthusiasts talk about the fact that the EU constitution sets all the key principles of neoliberalism in stone, effectively unchangeable – the free movement of goods, services, capital and ‘persons’ (this includes companies). That’s something that the bankers and transnational capitalists haven’t managed to get into a single national constitution outside the EU, not even the USA. In particular, they see the European Court of Justice as the guardian of workers’ rights. Yet it is anything but that.
Successive ECJ judgements have made it perfectly clear that the rights to free movement – of goods, labour, services and capital – come first. The right to strike in pursuance of what it calls social policy (jobs, pay, conditions, pensions) cannot, according to the Viking judgement, ‘automatically override’ these fundamental rights.
More fundamentally, said ECJ Advocate General Poiares Maduro on 23rd May 2007, “the possibility for a company to relocate to a Member State where its operating costs will be lower is pivotal to the pursuit of effective intra Community trade.” There’s the EU, in a nutshell: it’s a fundamental right for a company to move from country to country in search of lower and lower labour costs.
The EU’s fundamental rights are all about the market. It’s a far cry from ‘Life, liberty and the pursuit of happiness’ or ‘Liberty, equality, fraternity’. In effect, the EU acts as a superstate whose constitution embodies the freedom of capital and capitalists in a way unheard of in any other.
The first price that workers pay is that they must allow outsourcing and privatisation of national industries and services.
The second is that they cannot strike to stop work being outsourced to a cheaper country. The ECJ made the reasons for that very clear: “Without the rules on freedom of movement and competition it would be impossible to achieve the Community’s fundamental aim of having a functioning common market.”
And of course, there is the cost of the free movement of labour. It’s beyond doubt that it has hit unskilled workers in Britain particularly hard. It has lowered pay rates, and according even to the official Migration Advisory Committee, damaged the job prospects of lower skilled workers when the labour market is slack.
It’s not just the unskilled. Without free movement how could the government have erected the massive tuition fees barrier to the training of nurses, midwives and other health professionals while understaffing runs through hospitals like a plague? And the laws of supply and demand are clearly operating in other areas too, such as academic pay.
The TUC not only backs this free movement but, astonishingly, thinks that Britain’s migration policy should be handled on our behalf by Brussels. “It is… more effective for migration flows to be managed through EU legislation rather than member states creating patch-work laws to deal with the issue”, it told a government inquiry into EU powers in 2013.
The odd thing about the TUC’s blather on ‘workers’ rights’ is that you might expect trade unions, of all bodies, to know that it is first and foremost through the existence and activity of unions that workers can establish and defend any rights that they have.
There is nothing – not a single sentence – in the draconian Trade Union Act 2016 that runs counter to EU law, nor in the even worse bits that David Cameron’s Government was forced to drop as the Bill made its way through Parliament.
Items that would not have bothered the EU included the proposed requirement for pickets to give their names to the police – an idea that Conservative MP David Davis objected to violently. “What is this? This isn’t Franco’s Britain”, he said, referring to the 40-year fascist dictatorship in Spain.
Yet the EU is supposed to guarantee ‘workers’ rights’!
And when collective action fails or is absent, the only recourse is often to an employment tribunal. Yet when the Government introduced huge fees for employment tribunals in 2013, and Unison brought a legal challenge, it was primarily to English law based on Magna Carta and enshrined in 1297 that the Supreme Court turned in 2017 to rule the fees unlawful.
Back in 2015, Unite published a particularly biased leaflet called What has Europe ever done for us? (incorrectly equating Europe, a geographical fact, with the EU, a political construction). Among its outrageous claims was the oft-repeated notion that the EU ‘is also responsible for 3.5 million jobs in the UK’. The implication is that we would lose these jobs with Brexit. This is utter nonsense, though some politicians have said the same thing, and keep on saying it.
Claims that three million or more jobs depend on Britain being in the EU appeared following the publication of a report by Dr Martin Weale in 2000 for the National Institute for Economic and Social Research.
But the report did not say that these jobs would be lost if we left the EU. Far from it. It suggested that withdrawal may actually be good for us. It was the fault of politicians like Nick Clegg, John Prescott and Stephen Byers that the findings of this academic report were twisted.
Weale was furious at this distortion, describing it as ‘pure Goebbels’ and saying, “in many years of academic research I cannot recall such a wilful distortion of the facts.”
What, then, does the EU offer workers in the way of rights? Its defenders talk admiringly about working hours legislation – but what’s to admire?
It is true that the EU brought in its Working Time Directive in the 1990s, incorporated into British law in 1998. But look closer. Brussels mandated a minimum holiday of 20 days – including public holidays. British law states that the minimum is 20 days excluding public holidays, making our minimum 28 days.
So, any government could cut statutory holidays by a full eight days without contravening any EU law. Not that you would hear this from the TUC, which continues to push out stories talking about, for example, 7 million people’s holiday pay being at risk.
“There is no guarantee that [the government after Brexit] would keep paid holiday entitlements at their current level, or at all,” claimed the TUC in a typical act of gratuitous scaremongering, turning a blind eye to the lower holiday pay rights in most of the EU.
British maternity leave is another area where TUC alarmists have been trying to sow suspicion. Yet British law mandates up to 52 weeks of maternity leave, with Statutory Maternity Pay for up to 39 weeks. EU law? Pay and leave of up to 14 weeks.
And then there is health and safety. The TUC acknowledges that the government says it will transfer all existing health and safety protections from EU law to British law. But it adds, “there are no guarantees for what happens afterwards” – as if permanent future guarantees were possible.
“It should be written into the [Brexit] deal that the UK and EU will meet the same standards, for both existing rights and future improvements,” said Frances O’Grady, TUC general secretary.
This really is fatuous. It would leave Britain unable to improve its health and safety legislation unless the EU agreed to do the same, necessitating a negotiation with 27 member states. It would give Brussels sovereignty over workplace legislation in Britain, which is no kind of Brexit at all.
Back in 1988 the TUC waved the white flag and assumed that the only improvements in legislative protection for workers would come from Brussels. It’s still waving that flag, even though the EU itself acknowledges on its own website that “Responsibility for employment and social policy lies primarily with national governments.”
The truth is that our rights as workers have always existed only so far as workers have been prepared to fight for them and defend them. As long as we tolerate the employing class and the capitalist system, any rights we have will always be ‘at risk’.
But for now, the urgent risk is that we fail to finish the job of the 2016 referendum. Nothing is so imminently threatening to the wellbeing of workers in Britain than allowing the independence process to be derailed.
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The world is certainly changing. That’s not a new phenomenon – it’s been changing now for four and half billion years. But for those of us who measure change over a period of our lifetimes, it is probably changing as fast as anyone can manage.
Yet the change is not just around how we earn a living (who would have thought you could make millions out of posting cute kitten videos on the internet?), or the threat to many people’s future (what do we offer redundant Uber drivers after artificial intelligence gives us driverless cars?). Much of the change will be about how we see ourselves in the world as traditional structures alter in the 21st Century.
The West has a rich and mature economy. We have a standard of living that half the world desires, a broadly stable population and high and stable GDP per capita. We enjoy high productivity. Yet the three things that are fundamental to strong and rapid economic growth – a young population, a growing population and a low starting point – are in abundance across the globe outside the West.
Markets such as Asia are developing fast. Africa, while currently offering little excitement as a destination for Western global traders, will grow at a rate that we risk overlooking, passing up an opportunity to secure ourselves opportunities.
And as economies grow and the economic balance of power shifts, how will the world look in a decade’s time? What will be the role of the US, with its interesting politics, its America First approach and reluctance to enter into plurilateral trade deals? How will it influence the world and play its part?
China is rapidly about to take on the mantle of the world’s largest economy – a position it has enjoyed for all but the last three or four centuries of the last three or four millennia. But China’s economy, as a controlled market economy, is not one we intuitively understand in the West, and its approach to global influence and investment is characterised by the Belt and Road Initiative. BRI seeks to help nations develop a strong infrastructure, but uses Chinese capital, Chinese constructors, Chinese labour and Chinese machinery. The recipients of this investment find themselves mortgaged to the Chinese – and the growth that comes from it helps China as much as the recipient. Yet are those of us in the West, committed to the OECD’s definition of international aid, just a little envious of the Chinese approach of aid tied to trade?
Meanwhile, Russia asserts itself quietly through covert influencing of the West, and looks to build its global presence again; India’s population and influence grow every day (aspirational British brands such as Jaguar are now owned by Indian investors); and smaller economies such as those of South East Asia gather together, strengthening their ties established 52 years ago via the Association of South East Asian Nations (ASEAN), a collective whose economy is expected to surpass that of the EU by 2050.
In this changing world, we need to recognise that the world looks towards Britain with a sense of affection, a recognition that we have a rich cultural history, a tradition of standing up for decency and honesty – and a brand in the Union Jack that sells across the world.
It is remarkable that Hunter wellies have franchises in Tokyo; that housing developments in the outskirts of Shanghai are modelled on suburban Home Counties towns; and that owning a British car – a Bentley, Rolls-Royce, Jaguar or Aston Martin – is seen as the global epitome of class and success (irrespective of who the investors are).
Institutions such as the Commonwealth bring together a diverse group of nations that have a common, British heritage and they are proud of that. But it is not all that simple.
A Thai banker or property investor would be understandably baffled that just a decade after the Asian banking crises in the late 1990s, Britain and America constructed their very own banking crash, having apparently not learnt a single lesson from recent history halfway around the globe. Similarly, as countries look to work together and form alliances, such as ASEAN, there is collective bemusement that Britain seeks to separate itself from what appears on the outside to be a good trading bloc. That confusion is only compounded by the extraordinary splits in the two main political parties and the possibly terminal drive to the left of Britain’s Labour Party.
As a former Trade Minister, my experience in the two years after the Brexit vote sums up how the world view has changed.
Understanding the importance of exporting
In the first few months after the vote, the wider world looked at Britain and asked the question: “What on earth are you crazy Brits doing?’, bemused by the decision to separate from a successful, complex organisation. But as time went by, the refrain changed to: ‘Actually, this Brexit looks interesting,’ as companies realised that if a UK bilateral deal with a third country was better than their own country’s bilateral, it was worth investing in the UK to take advantage of that opportunity.
But the third stage was more worrying. As people looked more closely at Britain, and the chaos of parliamentary splits, it has become more apparent that a guy who might introduce exchange controls, who might nationalise people’s investments, who might tax wealth, might just become a hard-left Prime Minister. Even if he doesn’t, the theory goes (for some), the Conservative Party might pivot left to counteract his influence.
This recent view of Britain, however, might give us a clue as to what lies ahead. Because while we introduce greater risks for ourselves, we also bring forward greater opportunities. As the geo-economic tectonic plates shift, we need to assess whether we leave ourselves more vulnerable by being outside a trading bloc, or more agile, nimbler and more fleet of foot to seize the advantages of global opportunities. So while the risks are greater, the prize is greater. The potential volatility increases.
And we need to ask ourselves just what our role should be in the wider political spectrum of a changing world.
In 1776, Adam Smith published The Wealth of Nations. In it he argued that we should move from mercantilism (where we sold stuff to the rest of the world in order to secure greater gold reserves) and adopt free trade, where we exported our surpluses and imported those things that others made better or more easily than us.
This has been going on now for a few hundred years, and despite flirting with Marxism and socialism, we keep coming back to Smith as a way that works and a way that fits the human spirit. But we must ask ourselves: are we, the sons and daughters of Adam Smith, truly living up to his ideas?
In the broadest sense, the answer has to be yes. We are advocates of free trade and we pride ourselves on our ability to trade freely with the rest of the world. But there was a common refrain during the EU referendum in 2016. Some Brexit campaigners challenged that the EU was holding us back, that we couldn’t trade with the rest of the world because of the EU. In the fog of war, much is said, including myths that don’t bear up to the hard reality of fact.
The broadest measure of a country’s financial internationalisation is the current account – the measure of all money coming in and going out, whether from trade, investment, borrowing, dividends or remittances.
Of the G20 nations, the UK in 2017 had the third highest current account deficit, behind Turkey (5.5 per cent of GDP) and Argentina (4.9 per cent). At 3.7 per cent of GDP, our current account deficit looked shameful compared with China’s surplus of 1.5 per cent, Italy’s 2.8 per cent, Korea’s 5.1 per cent or Germany’s amazing 7.9 per cent.
Even looking at our export performance, far from being held back by the EU, our numbers held back the EU’s. Our exports of goods and services were the equivalent of 30.5 per cent of our GDP, leaving us a lamentable 28th out of 28 EU members in terms of export performance. France was not much better. But a broadly (very broadly) similar economy to ours such as Germany saw exports reach 47.2 per cent of GDP, while the star performer was Luxembourg at a whopping 230 per cent (which is what you get when you combine a tiny economy with a vast financial services sector).
Trying to understand what lies behind these figures is hard. While much was made of our enthusiasm to export more during the referendum, the experience of the Department for International Trade was that the demand for British brands far exceeded our ability to supply. An estimated 400,000 British businesses which had exportable products were not exploiting their overseas opportunities. In taking their products to market, it seems, British businesses do not instinctively look overseas.
When I served as Minister for International Trade, I addressed a Chamber of Commerce business breakfast of 100 or so attendees. Just 15 were exporting already and only half a dozen were looking to export. That was disappointing in itself. But when asked how many were importing, just three hands went up. This from a room of people who sit on Swedish furniture, watching American films on Korean televisions, listening to Japanese hi-fis, wearing clothes made in the Far East, driving German cars. Birmingham’s signature dish is a Balti. We all love a Chinese takeaway. The truth is, we engage with the world – but mainly when it comes to us.
Brexit’s opportunities and challenges
Brexit is the most brilliant opportunity for this country. Brilliant because it can be used as a focal point for us to redefine how we engage with the world. It is the match that lights the blue touch paper of our global rocket. While divisive now, it can be the unifier that joins us in this great endeavour to engage globally. It can define us as a global influencer for good.
But we need to think about a few things first.
In his book The Road to Somewhere, David Goodhart looks at ‘the new tribes shaping politics’. He raises the point that two thirds of all people live within 14 miles of where they lived as a young teenager.
There is, among as many as three quarters of us, a strong sense of place, of loyalty to the local community, of attachment to the locality that we value so much. What a wonderful aspect of our nationhood that we feel so paternal about our neighbourhood.
But there is another side to this. That sense of care and devotion also leads to a sense of protection, a worry that the local way of life might be harmed or changed. As politicians we see this in its simplest form when planning applications are made. Once built, a new development is accepted almost immediately, but not until after quite a protest.
In trade, this manifests itself in odd arguments. Take TTIP – the almost certainly defunct Trans-Atlantic Trade and Investment Partnership between the EU and the US. Hundreds of thousands of emails to MPs were generated complaining that TTIP would result in a sell-off of the NHS as US firms would buy up vast swathes of our much loved health service. Or the recent row when British firm DeLaRue lost out to a French security printer in winning the contract to manufacture our new, blue, non-EU British passports.
Those howling in outrage (including from DeLaRue) protested that it was an abomination that the French should have anything to do with our sacred and symbolic passport. The reality is that these agreements form part of the Government Procurement Agreement, a deal among nations to open up their government buying contracts to other nations, thus creating a more efficient and fair market. We could withdraw, but in so doing DeLaRue would lose far more international contracts to produce other countries‘ passports (and banknotes) than it would gain in keeping the UK’s blue passport. Similarly, companies selling medical equipment and services to US health operators would lose out if we closed our medical market to outsiders.
The same applies to consumer interests and standards. This debate manifests itself with the so-called chlorinated chicken. Under EU standards, chickens are reared in pens at a significantly lower density than American chickens. The result is happier but more expensive chickens. In being happier, there is less chance that our chickens carry campono bacteria, so they are washed in fresh water during preparation for the meat market. But in America, they are washed in chlorine (or the modern equivalent) to kill off the bacteria (something we humans do every time we go to a public swimming pool). Although this sounds unsavoury, it turns out that you are four times less likely to pick up a bug from an American chicken than a UK one.
However, if we maintain our production standards, we will make our home-grown chickens uncompetitive against those imported from outside the EU. The result will be that domestic chicken farmers fail due to a price war. ‘But,’ ask some consumers, ‘if there is cheaper chicken available, why should I pay more just to keep some local farmers happy?’
Similarly, a producer of a desirable product, currently facing barriers to entry in the US, might suggest that we open up our chicken market to US exports in return for his access to the US. And all the while we do these trade deals, we must concede that having just won back sovereignty from the EU, we are ceding just a little bit of our hard-won sovereignty every time we sign a new free trade agreement with another country.
So, the challenge we face as we turn our trading eyes to the horizon is to bring the nation with us. The Brexit dividend – global free trade – is one that is not as clear-cut as one might think. We abandon the European Court of Justice only to replace it with the World Trade Organisation courts. We extract ourselves from the Lisbon Treaty merely to create new, and many more, deals elsewhere. But it is a challenge we must embrace and win.
The aid debate
There is another argument that needs to be won: aid. One of the Conservative Party’s greatest achievements is reaching the 0.7 per cent aid target. Set by the Development Assistance Committee (DAC) of the OECD, the UK is one of just five members (of 30) who have achieved the target. This is something to be incredibly proud of.
But it is understandable that, in the latter stages of the austerity process, people challenge whether this money would be better spent at home. The ‘charity begins at home’ mantra is well used.
Yet consider something as simple as a person’s need for clean water. Every individual needs 1.5 litres a day of drinking water to survive. Two billion people across the planet have limited or no access to fresh clean drinking water, yet we Brits each flush 35 litres of water down the lavatory every day.
It’s almost certainly too simplistic an argument for a complex debate. But a UK shipbuilder recently challenged a decision by DFID to give a developing nation tens of millions to build a ship. “Why’, they reasoned, ‘didn’t DFID commission the ship from us and then give them the completed ship instead? It’s a very good question. Job creation in the UK and help to a developing nation. I struggled to find a good answer.
This brings us back to the Chinese Belt and Road Initiative. China’s money helps developing nations achieve infrastructure ambitions while helping China develop economically. It also secures a Chinese footprint that straddles the globe.
Of course, there is a reduced economic benefit for the receiving country as little of the investment money is spent locally. But China is expected to invest something in the region of US$1 trillion. That blows Western aid commitments out of the water.
Yet it has to be a good thing – a wealthy nation sharing its wealth with those who need it, creating for itself a new market, more global stability, lower migration. But with just one sixth of DAC members achieving the aid target, should we ask if there is something wrong with the target?
So the challenge for new Global Britain is this. First, we must come to an agreement that international aid is a good thing, and that we want to continue to give 0.7 per cent of GDP as Overseas Development Aid money (ODA). If we achieve that, do we want to be free to choose how we give it, tying aid to trade, by abandoning the DAC definition and our membership? Or do we remain in DAC and try to modify the definition of ODA spend, thereby encouraging others to up their contributions? Or should we be quiet and carry on as before?
I suspect that an ambitious, truly Global Britain may want to be an influencer. I suspect that we would proudly hold our head up high if we can change DAC to a more achievable definition, helping others achieve the 0.7 per cent target.
The World Trade Organisation (WTO)
A confident Britain should be looking to extend its reach further. An organisation such as DAC within the OECD is important, but it is already something where we have our own voice. In the new, post-Brexit world it is important that we look to speak up in forums where our membership has been subsumed by our membership of the EU. There is no better example than the World Trade Organisation.
The WTO, and its predecessor GATT, have been instrumental in reducing tariffs to trade. This has been a good thing, freeing trade and helping both consumers and producers within the 164 member countries. But in the last few years, the WTO has identified a fourfold increase in non-tariff barriers – even before we saw the locking of horns of the world’s two biggest economies.
The trade war between the US and China reflects nationalism in the US and game-playing by the Chinese. With the world’s second biggest economy (soon to be the biggest) maintaining it is still a developing economy, and the world’s current biggest economy introducing blatantly protectionist measures, it is clear that consumers will suffer. And not just Chinese and American consumers. When elephants fight, goes an African saying, it is the grass that gets trampled.
What is clear is that a confident Britain has a big role to play post-Brexit. But for its role to be clear and effective, it has to have a sound strategy. It is not good enough to simply say that we need to get our current account deficit down, or to boost our exports. Simply being an advocate of free trade is good in itself, but by itself it does little more than help consumers.
A grand strategy that draws together free trade, reform of aid and ODA, that brings with it the enthusiasm of the population of these great sceptre’d isles, will put Britain front and centre of a maturing and developing globe.
In working as global reformers and free traders, we will play a leadership role in securing a safe and reliable future for our global economy. In so doing, our people will be proud of our achievements, hold our head high as global leaders, yet certain of the security of their local communities.
Moreover, as we develop our own trade policy, and influence others, is now the time for the UK to seek to introduce our social values within trade deals? Workers’ rights, the rights of minorities, women’s rights and protections, animal welfare, tackling modern-day slavery, ridding the planet of plastic waste: these are just a small handful of many progressive policies that we are proud to have championed in the UK. Can we demonstrate, successfully, our ability to influence others to follow our leads though not just our new-found independent membership of global organisations, but by the choices we make when securing free trade deals?
Brexit is just the catalyst we need. The future is exciting. Now is the time to embrace it.
The above is one of more than 35 essays by Conservative politicians included in the new book, Britain Beyond Brexit, just published by the Centre for Policy Studies.
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It’s funny, but every time one mentions ‘Article 24’ publicly – meaning (using the correct Roman numerals) Article XXIV of the General Agreement on Tariffs and Trade (GATT) which predates the World Trade Organisation (WTO) – you receive a barrage of hysterical abuse from Remainers, often with long academic titles. They are clearly terrified we’re on to something.
They say: ‘The EU would never agree to it!’, ‘The EU would not be minded to do a deal if we leave on bad terms!’, ‘You can’t do it in a no-deal situation’ and ‘We’d have to levy tariffs not just on EU goods but all good from around the world’. This last point was made on Radio 4’s Today programme discussion of Article 24 yesterday morning.
But these claims are wrong. We know they are wrong because collectively we have asked the EU: its Chief Negotiator Michel Barnier, its trade advisers and personnel, and people David has worked with for ten years on the International Trade Committee of the European Parliament doing trade deals. And together we’ve asked very senior people at the WTO and top trade lawyers too, such as the impartial Article 24 expert Lorand Bartels of Cambridge University.
Their conclusion: GATT Article 24 is not only doable, it is desirable. Here are a few facts relating to Article 24:
1) Let’s not confuse what ‘deal’ or ‘no deal’ we are talking about: we are not seeking to renegotiate the Withdrawal Agreement or attempt ratification of that deal by 31st October. Angela Merkel and other EU leaders have made it clear that ‘deal’ is not negotiable.
So this is not a deal based on the Withdrawal Agreement under EU law such as the Lisbon Treaty’s Article 50. Nor is it a trade deal conducted under the EU’s ‘Future Relationship’ or ‘Political Declaration’ provisions either with its binding legislation – it is a separate deal done under World Trade Organisation rules.
2) The World Trade Organisation makes trade rules, not the EU. There’s a clue in the title. The EU quite correctly works within the global rules system on trade via the WTO. Most EU free trade agreements incorporate WTO level agreements like GATS – the General Agreement on Trade in Services.
3) GATT was the predecessor to the WTO and Article XXIV/24 is contained within these global GATT rules which all individual WTO members – that includes the UK as an individual full WTO member, every EU member state as individual WTO members and the EU as an entity – agree to implement.
4) The whole point of the WTO is to promote free trade around the world. The WTO does not like tariffs (taxes on goods entering), quotas (a certain quantity of goods entering at a certain tariff) or barriers to trade (e.g. excessive regulation advantaging home producers or in services). So the WTO will not like it if the UK and EU return to imposing £13bn tariffs on EU goods and £5bn on British goods into the EU. It goes against the grain.
5) GATT Article 24 is there to allow two countries or blocs to move towards a free trade area or a customs union. It basically allows the two countries to level lower tariffs and quotas than what is called ‘Most Favoured Nation Rules’ (MFN). Ironically it is the very basis of the EU’s zero tariff Customs Union which took between 1957 and 1968 to actually enact.
By offering one country a better deal than other WTO members you are discriminating – you are offending the rule that everyone must be treated the same – so you must levy the same MFN tariffs to all. This is such an important rule it is actually Article 1 of GATT. But Article 24 is a specific exemption to this.
Free Trade Agreements (FTAs) are really a licensed form of discrimination where you are allowed to offer better terms to one country over all the others but only if you really free up trade – particularly getting rid of at least 90% of tariffs.
6) So given the WTO hates tariffs (it’s not happy with President Trump and others reimposing tariffs but that’s another story), then it is amenable to ways of avoiding tariffs without disadvantaging its other members.
So if the UK and EU go to the WTO jointly and say that we have agreed to move to a full and comprehensive Free Trade Agreement (what we term ‘SuperCanada’ – that is better than the EU-Canada FTA) – that keeps tariffs at zero with no real change to other members, the WTO is happy to allow us a period of time to keep tariffs and quotas at preferential rates. GATT 24 allows what are called ‘standstill’ arrangements – much remains the same and this is essentially a WTO form of a transition – but is not an interim arrangement as is often claimed.
We can keep tariffs at zero for as long as the two partners need to negotiate the full works: that comprehensive FTA. Legally this could be up to ten years, but most are two to three years to negotiate. That is GATT 24.
7) Yes, GATT 24 needs a temporary agreement between the EU and UK, but frankly it could be written on the back of an envelope. Lorand Bartels has helpfully written a one-page FTA properly that is sufficient to allow Article 24 to apply. This is a ‘basic deal’ or a ‘temporary FTA’. But it is entirely manageable and legally sound.
So to our Remainer friends – yes, you need a deal, but one or two pages of FTA is much easier than the 585-page Withdrawal Agreement to agree.
8) So why would the EU agree?
Well, the UK is the fifth largest economy in the world and the EU’s largest single market – bigger than the USA, China and India. The EU has a £96 billion goods deficit with us (we have a £13bn services surplus). Over a million German jobs alone rely on British consumers buying German goods like BMWs. Without a basic GATT 24 deal, the EU would have £13bn tariffs slapped on its goods – 10% on VWs; 12% on wine, 40% on cheese. They would suffer far more than the UK simply because they sell more to us than we do to them. The EU – particularly Germany, which accounts for nearly a quarter of all EU trade to the UK – does not like the idea of this. Better for everyone surely to keep on an even keel?
There is also the question of money. The UK may well be prepared to pay a fair contribution, if not anywhere near the £39 billion associated with the Withdrawal Agreement, but this would be contingent on such a basic deal. It is also much easier to deliver by the end of October.
In the absence of EU agreement to GATT 24, the UK can unilaterally and universally change its import tariffs, and be open to cutting all tariff rate quotas – but obviously the UK would not be able to control EU import tariff rates.
9) What about services and standards?
Services will be a part of the future trade deal but will be along the lines of ‘Mutual Recognition’ of standards or ‘enhanced equivalence’, not on a harmonisation or rule-taking basis.
10) What about all the the other non-trade elements, such as aviation flying rights?
GATT 24 is not the only basic deal needing to be done if there is no Withdrawal Agreement. It will need an accompanying flotilla of what we call ‘mini deals’.
But – good news – the EU has already quietly agreed most of these through emergency legislation. As an MEP, David has voted on 17 main pieces of legislation to keep trucks rolling, planes flying, trains running, goods flowing, fishing boats sailing, visa costs eliminated, energy efficiency maintained, social security cooperation, the Northern Ireland Peace programme running, Erasmus+ for students allowed, and other affairs. The UK just needs to reciprocate.
The reality is that much of the non-controversial elements of the Withdrawal Agreement can be agreed as separate ‘mini deals’ in exactly the same way – for example, the elements on citizens’ rights – but can be done outside the provisions of the European Court of Justice. This is the case with other EU free trade deals including Canada and Switzerland.
11) What about the Northern Ireland border and Good Friday Agreement?
Iain served as a soldier in Northern Ireland and well knows its challenges, whilst David worked on the Peace Process 20 years ago as a Government Special Adviser. There is no mention of the border in the Good Friday Agreement for a start (rather a sensitive subject!).
With Ireland only checking 1% of goods imported now and with existing trusted trader and other current mechanisms available, such as checks in factories and warehouses, even the EU admits alternative arrangements can be done with the border remaining free. No one wants a hard border. But the detail of this can await the negotiation of the bigger free trade agreement – and is part of that.
What GATT Article 24 represents is a Clean Managed Brexit – and what’s more it is deliverable by 31st October.
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So far, Brexit has provoked plenty of soul-searching about Britain’s place in the world, but little clarity about the United Kingdom’s long-term strategic direction. The United Kingdom faces a number of potentially major foreign policy dilemmas on the horizon, posed by changes in the global balance of power, for which we are insufficiently prepared. They would confront us even if Brexit were not happening. But Brexit makes a reassessment of our future foreign policy even more urgent.
In truth, Brexit has exposed inadequacies that existed before the 2016 referendum. Partly due to the favourable historical circumstances in which we found ourselves at the end of the Cold War, we have fallen out of habit of thinking strategically and competitively. Foreign policy has been subsumed into a vaguer notion of national security. Times have changed, and we cannot afford any more navel-gazing.
The international situation is going through a period of flux. The rules-based order – the shared commitment to abide by agreed rules and norms, most of which were set down in 1945, and which the United Kingdom was at the heart of writing – is getting plenty of attention at the moment because that order is under threat. Russia is undermining the United Nations and flouting international law, while China is becoming increasingly assertive in international affairs and challenging the World Trade Organisation and other institutions. At the same time, important partners like India are yet to achieve full recognition of their rightful place as global powers.
The challenge from within
The most important challenge to this order comes not from another country, but from within: it’s our own complacency and disillusionment. The West, that group of nations who value the rule of law, economic liberty and human rights, seems to be losing interest in the international order that has done so much to keep us safe and make us prosperous since the end of the Second World War.
These are the rules – let’s not forget – that, as unfashionable as they may currently seem, have stood between us and the demons of our worst nature.
There are many reasons we could suggest for this disillusionment, but most seem to be symptoms rather than the cause. At root there is, perhaps, something more human going on: a collective amnesia. The fact that terror and unrest shaped previous eras has been forgotten; three quarters of a century later, the number of witnesses of the violence of the Second World War is dwindling. Today, too few have looked the devil in the face, too few have seen what can happen when the rules collapse and anarchy reigns. Too many see peace as the ordinary state of affairs when a cursory glance at history makes clear peace is painstakingly constructed and easily lost. Peace is the exception, not the rule.
Finding the cure
But all that is a diagnosis; what we now urgently need is a cure. Since becoming chair of the Foreign Affairs Committee, I’ve met many experts. Their views vary but in essence their focus is the same. They say: we must stay close to Europe, and work more closely with NATO, the UN and OSCE. We must recognise that our strength derives from our membership of these bodies. We don’t stand alone. In other words, we must rebuild the old equilibrium.
I understand where they’re coming from and agree with much of their diagnosis. But it’s not enough for today’s challenges. It ignores the tremors of the past decade. It pretends that the damage done by Vladimir Putin, the mercurial decisions of Donald Trump, or Brexit, or China’s growing power, are all just passing phases. It forgets the only truth in life: you can’t go back.
That’s why we need to build on the past, not copy it. We must find new ways of working with our allies, marry ideas and define a new conservative internationalism that is better fitted for the challenges of the 21st century.
Building on our values
A foreign policy that works for the British people is one that builds on our values and promotes our interests. It starts with the basic unit of legitimate authority – the nation state. Forgetting that essential point is how the trouble began for us. While other countries have struggled to work together, we’ve forgotten what it means to be a nation. That matters today because the rules were never going to last forever. But many of the experts who come to see me are yet to come to terms with the fact that all systems change and this one – multilateralism – is not holding.
There are many causes for this but two that really affect us. First, in Europe, the EU’s centralising, supranational instinct is out of kilter with the temper of our times. As a prime minister of one of the founding member states said to me last year, ‘It’s a real shame about the European Commission. If we’d just been a group of nation states in Europe, we could have made this work.’
Second, looking further afield, the UN is struggling to keep up with a changing world. The credibility of the Security Council is draining away as the veto has lost much of its moral authority. How can it retain it when the veto is so often used to shield brutal dictators? How can international law be defended when some of the worst offenders in undermining it sit on the UN Security Council?
So we find ourselves in the situation where two key institutions are failing to protect the very system they were created to uphold. This is a sea change, not a passing storm.
As I said above, we would face many of these challenges regardless of Brexit. But Brexit will change the EU in ways that few have thought much about. Italy will become the third most powerful member of the European Council while others, who have previously been recipients of EU aid, will now become contributors. And the political centre of gravity will shift south. The new EU will not be 28 minus one, but a whole new organisation. The implications of Britain’s departure will be felt across the field.
The UN too is changing more fundamentally than is often recognised, through a more assertive General Assembly and the recognition that countries like India have a legitimate claim to greater influence. Even the Commonwealth, whose GDP now rivals the Eurozone’s, is evolving. It’s not the post-imperial club it once was, but it has not yet found a 21st Century role.
That’s why we should not do more of the same. Britain’s history should not make us curators of a crumbling international order. Instead, it should place us, like our predecessors, at the forefront of the creation of a new one.
That asks an urgent question of British foreign policy: how can we help design what is needed – an international system for today’s world?
Understanding the importance of the nation state
As we consider how best to do this, we need to remember that the building block of many people’s identity is the nation state. At the end of the Cold War, there were some who said that the state would soon be consigned to the dustbin of history. It is clear now they were wrong. The view that ever greater economic inter-connectedness would melt borders away and make old national frontiers disappear has proved out of date very fast. The state is back, if indeed it ever really went away.
In Russia, a declining population and a shrinking share of global GDP is being masked by swift and decisive state power. In China, the Belt and Road Initiative is one of many examples of state-led action designed to advance the interests of the state, not the wider inter national community. Even in the US we have been seeing for years an increasing assertion of American national interest.
Here in the UK, it was the state that we turned to in the financial crisis to bail out the forces of globalisation, and that is coming back strongly as people search for a foothold in a changing world.
Recognising the strength of Britain’s position
The good news is that Britain is starting from a strong position. When it comes to foreign policy, we are one of the heavyweights. Our diplomatic and intelligence networks provide us with penetrating insight. Our soft power, from our trusted media to our generous aid programme, helps us project influence. And our history of political stability, free markets and international networks attracts investment and enables trade. Finally, and as a last resort, we can still project power through the convincing threat of force.
Getting those fields to cooperate and not compete requires strategic direction, and that in turn urgently demands a revolution at the heart of government. The Foreign Office, once one of the four great offices of state, is a shadow of its former self. Its role directing foreign policy has been gradually hollowed out. It has lost control of essential aspects of overseas influence, like Europe, trade and development, and it is obliged to take part in a tug-of-war with the Cabinet Office, which subscribes to a more limited vision of national security. This has created silos in our foreign policy and a culture in which different departments fight each other for resources at home and abroad.
The consequence of all this is that successive Foreign Secretaries have been hobbled. They’ve had the title, but they haven’t had the power. Diplomacy can only go so far when decisions about trade, aid and defence are being taken elsewhere.
A new strategy matters now more than ever, because the success, or failure, of our foreign policy is more important to the future health and prosperity of our nation than it has been at any time since the end of the Second World War.
A single foreign budget
So, we need to make the Foreign Office the strategic engine of our overseas engagement again and give it the authority to manipulate those levers. There are debates as to what this would mean in terms of merging departments. But the minimum would be oversight of a single foreign budget to cover the needs of all the related departments, letting elected ministers make judgments on how to balance our strategic priorities. Above all, we need to give the Foreign Secretary the power to reorder our priorities and coordinate our strengths.
What should we then do with this new-found capability? I believe our mission is to advance the rule of law. These islands, by accidents of geography, history and war, have a long, unbroken tradition of justice that is unrivalled throughout the world. Building on that, we have played our part in writing the rules that have helped keep liberty alive elsewhere. That is something we can be deeply proud of. Together with a hard-won reputation in commerce, I think this helps explain why English law and British justice are prized as the gold standard around the world.
China uses the common law in Hong Kong. Dubai has opened common law courts to any business that wants them. In Astana, the Kazakh president promised two years ago that its new financial centre would also be governed by English law. Even Vladimir Putin, the man who is doing his utmost to break the international order, is using UK jurisdictions to protect his assets.
This is where a coordinated approach, under an empowered Foreign Office, could make a huge difference if we turned this gift to our advantage. Combining our legal tradition with aid, trade and security to help other countries that already have strong legal connections to our own, we could lend them judges, reassure foreign investors, and see our own companies receive a powerful competitive advantage. Along with higher education, scholarships for talented foreign students, and so much more, we could devise a joined-up strategy that links our strengths.
We could go further and align markets around the world that already rely on English law, a commonwealth of common law. Countries which are at once sovereign but enjoy growing business and investment opportunities by building on shared legal understandings.
For me, the basis of our foreign policy must be to remember some home truths: the role of the nation state, the rule of law and the coordination of strategy are all essential to shaping our future. Acting with allies, across the world, we have much to offer as a friend and partner.
The British national interest is asserted, strengthened and amplified by alliances and multilateral institutions and reviving them is essential to our world. We have a crucial, even essential, role to play to do that. But multilateralism should never be seen as an end in itself, or a comforting return to a reassuring status quo.
For too long we have used the structures built by our ancestors as shields. The institutions they built weren’t defensive ramparts, but forward operating bases – not places to hide, but places from which to project ideals, to fight for our values and to ensure our national interest in security and the rule of law was upheld around the world. By empowering the Foreign and Commonwealth Office, and coordinating across government, we can rediscover our unique role in the world and help write the rules again.
The above is one of more than 35 essays by Conservative politicians included in the new book, Britain Beyond Brexit, just published by the Centre for Policy Studies.
How should the next Conservative leader and Prime Minister deal with Brexit? Only by facing the facts and then acting with energy and decisiveness.
First, we need to acknowledge the mistakes of the past few years. It was a mistake to agree a short Brexit timetable without a clear understanding of how that timetable could be achieved; not to recognise that the narrow but decisive referendum vote could and should form the basis within Parliament for an agreed withdrawal deal; to allow the EU to dissociate the financial settlement from the overall deal; and above all not to prepare from the outset for No Deal.
Secondly, we need to be clear about the mood of the country. There are feelings of division not seen in our recent history. It is fanciful to imagine that a second referendum could address them, and a general election would create chaos. The only solution to this division is for this country to leave the EU on or before 31st October.
Thirdly, we need to recognise the impact of the recent European Parliament elections. The political landscape in Europe is changing. There will be a new Parliament, a new Commission and a new President. Parties opposed to the EU have triumphed, not just in the UK, but in France, Italy and Poland. The momentum is with these parties.
Fourthly, we need to note the timetable. A new Conservative leader and Prime Minister will not be chosen until the end of July. If the new European Commission is not in place by October, there may be no counter-party with whom to deal over Brexit.
Fifthly, we need to accept that, as matters presently look, there remains no appetite within the EU to renegotiate the Withdrawal Agreement. This does not mean no renegotiation is possible, however.
Finally, we need to be realistic about No Deal. This is a highly unattractive outcome for all concerned. For the UK, it would not be an economic disaster, but it would likely mean a period of slower growth. The World Trade Organisation is not a fully functional organisation and “WTO terms” are by definition less frictionless than a deep economic union.
For the EU, No Deal would be a very bad result and, for Ireland in particular, No Deal would be disastrous. But the real point is that No Deal could well lead to a break-up of the United Kingdom.
What does all this mean? I would suggest this: No Deal must be firmly brought back into play. The new leader and Prime Minister needs to accelerate no-deal preparation still further within government.
As Minister of State in the Department of Transport, I was responsible for much of our Brexit preparation, especially in freight and road haulage. I saw directly how the possibility of No Deal improved the engagement and commitment of other European nations in working with us. So it will be here.
The political geometry of the EU is changing. This is the moment to reach out to all the different players, both among the nation states and among the EU institutions, to understand what motivates them and try to bring them to the table in a renegotiation.
There should also be movement within Parliament. The EU elections were dreadful for Labour. Wiser heads there will recognise that failure to leave will hurt them still further. All these factors point towards the potential for some form of consensus within Parliament.
I am now consulting with colleagues, party members and constituents on whether or not to stand as the next Conservative leader. With effective leadership, this country has a profound opportunity, and a duty, to address the coming global challenges through our history, culture, music, arts and science; through our Union, our language, location and law; and through our inclusive, forward-looking and entrepreneurial spirit.
For this, we must choose a leader not for three months, but for three years or more. But first we must take Brexit and get the job done.
This article was first published in the print edition of the Daily Telegraph on 30th May
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It is undeniable that the EU has been in the driving seat for Brexit negotiations to date.
The Withdrawal Agreement is specified under EU law – Article 50 of the Lisbon Treaty – and has never worked for us. Without one, all the EU treaties stop applying as of 29th March.
However, should the UK leave the EU under what is wrongly referred to as a ‘No Deal’, trade deals would then be carried out under the international trade rules of the World Trade Organisation (WTO) that the UK helped establish.
The 164 member WTO offers Britain a remarkable opportunity to leave the EU cleanly, avoiding all of the apocalyptic predictions set out by the likes of the CBI, Bank of England or Chancellor.
Because through GATT Article 24, the EU and UK are able to agree a very basic Free Trade Agreement that would keep tariffs at zero for the duration of the period the two sides negotiate a comprehensive Free Trade Agreement.
Article 24 is by no means a final destination, it is simply a stop gap that would allow Britain to leave the EU on 29th March 2019 – as promised time and again by the Prime Minister – while at the same time, avoiding any uncertainty that could negatively impact our economy or that of the EU.
Some have been dismissive of Article 24, arguing that with tensions between the UK and the EU at an all-time high, it would be impossible to agree to a Free Trade Agreement. However, they are missing the point that such an agreement does not have to be comprehensive. All that is needed is a one-page agreement signed by both sides. Cambridge law expert Dr Lorand Bartels has written a bare bones agreement that would suffice in order to instigate Article 24.
By doing so, the UK would be protected from discrimination claims by other WTO members. In the event that other WTO members did make legal challenges against the UK, they take a number of years to be heard and a comprehensive Free Trade Agreement would be the ideal remedy anyway.
One of the greatest benefits of implementing Article 24 would be that businesses would avoid having to calculate 20,000 tariffs, many of which are complex with very slight variants for many products. Granted, customs declaration forms would need to be completed, just as they are for suppliers from the rest of the world. But the removal of tariffs would make this process extremely straightforward. HMRC have introduced Transitional Simplified Procedures (TSP) for the 145,000 VAT-registered businesses which trade with the EU (meaning only 7% of UK businesses and 12% of the UK economy) removing the need for full customs declarations at our borders and import duty payments.
It is absurd to be voting on No Deal today as the option really does not exist. There should be a meaningful vote on GATT Article 24 as a safe, alternative Brexit deal that would get Britain out of the EU with minimal drama. The British people expect their politicians to deliver on the result of the referendum without causing chaos, and Article 24 ensures that can happen.
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There has been much speculation about what the UK and EU will do in the event of No Deal, focused in the UK on the no-deal planning notices emanating from the Department for Exiting the European Union. What little attention has been paid to the Department for International Trade (DIT) has usually taken the form of criticism that crucial deals for the UK’s external trade will be lost because we will have failed to novate or roll over the agreements with a host of countries we have through the EU.
Any DIT announcement of a successful roll over or novation is usually accompanied by howls of derision from various doomsayers who say that this is a small percentage of the number of agreements the UK has through the EU with other countries outside the EU27. Reference is often made to 60 or 70 agreements that fall into this bucket (it is actually around 40 agreements covering around 70 countries).
When it comes to what we might have if we leave with no deal, the analysis is entirely static, assuming that some mythical gate will come down and foreclose all trade if we have not immediately rolled over all agreements, and assuming that whatever we have when we leave will remain the status quo forever from that point. It is also fair to point out that our trading partners have been confused by the UK’s EU negotiating strategy, something on which DIT has no input, and this has led our trading partners to doubt that we will ultimately be in a position to offer deep liberalisation in the future, because we will be locked into the EU Customs Union or have such high regulatory alignment that we will be unable to have the requisite regulatory autonomy to make us relevant to them.
This uncertainty has certainly impacted their negotiating strategy, and made them more determined to extract as much as possible from us now, because they believe our EU strategy will mean we will be unable to negotiate properly in the future. The more that parliamentary voices lobby hard to take No Deal off the table or extend Article 50, the less incentive these countries have to close these agreements with any urgency, so our own lack of discipline is contributing to the issue.
Despite this hostile working environment, DIT has been quietly and successfully rolling over many of these agreements; and with regard to the ones that matter – and that actually impact meaningful amounts of UK trade (as opposed to say agreements with Andorra and San Marino) – progress is relatively good (with a couple of exceptions which I will discuss below), even in the event of the UK leaving the EU without a signed withdrawal agreement.
First of all, some threshold points. It is often assumed that if 1% of our trade is with country X, and country X has a trade deal with the EU, this means that if that EU-X agreement is not rolled over in favour of the UK, then that means all of that 1% of our trade will fall to zero. But this is not how trade works. Clearly for some products, especially agricultural trade where tariffs are high, failure to novate could have a big impact on our exports (assuming the agreement in question lowers agricultural tariffs for country X, not always the case in the EU-X agreements).
But equally, where the tariffs are low, and industrial goods tariffs are very low (Most Favoured Nation rates for industrial goods are on average 3%-4%), then failure to novate will simply mean a marginally higher tariff that may be compensated for by a host of other factors such as currency fluctuations or tax policy. Right now, even in some of the most established agreements, such as NAFTA and the EU-South Korea agreement for example, some traders still choose to pay the MFN rate and do not take the benefit of the preferential rate because proving origin is more hassle than just paying the low MFN rate.
With that caution, let’s look at progress to date. The agreements that we have through the EU (excluding the recently-signed Japan agreement where tariff cuts only commence in January 2020) account for 11% of our total trade. Looking at how much trade is duty free around the world (or duty free under a GSP programme), it would not be surprising if the trade actually affected – in case the agreements are not rolled over – would be approximately half of that. Of these, the Swiss agreement alone – which has been rolled over – is worth 20% of our trade. Other significant agreements here include CETA, covering a further 12% of the trade under these agreements (almost rolled over), and the EU’s agreements with South Korea and Singapore, each covering around 10% of this trade.
Equally it is worth pointing out that 20 of these EU-X agreements account for only 0.8% of total UK trade. Many of the EU-X agreements are Economic Partnership Agreements (EPAs) that are with small developing countries, not critical to UK trade. We would certainly like to replace these arrangements with UK arrangements, but we should take the opportunity of having a different approach to development here. The EU’s approach to development is to charge high tariffs on the products that developing countries produce (often with significant tariff escalation), and to compensate by lowering that rate through its preference programmes such as GSP, and GSP+ which are conditional (and could be lost by the developing country for any number of reasons outside of the control of individual traders and exporters), and to limit the unconditional programmes (Everything But Arms) to only the poorest of the poor.
A smarter approach for all sides is for the UK to actually be genuinely open to the products of these countries, but to compensate them on a one-off basis for the preference erosion that this will cause. We should also eliminate tariff scalation from our schedules so that these countries are incentivised to go up the value chain and garner more value for their producers – a key element of development. Notwithstanding this, the UK and the Eastern and Southern African states have now rolled over their agreement with the EU.
The UK is very close to rolling over the EEA agreements which cover around 2% of UK trade, mostly with Norway, as Liam Fox pointed out in a ministerial statement last week. We have also rolled over a series of nuclear safeguarding agreements. The UK has acceded to the Common Transit Convention. Although the UK is a member of the WTO by right, and does not have to re-accede to it, it does have to accede to the WTO Government Procurement Agreement, and is in the process of doing so. The recently-signed Swiss agreement also contains important cumulation provisions covering goods originating in the EU, EFTA and Turkey. Crucially, goods that would have been considered ‘of community origin’ by either the UK or Switzerland will remain so.
But trade is also more than just about trade agreements. The UK has been able to roll over a number of mutual recognition agreements (MRAs) that are very important to facilitate trade. MRAs make it easier for people to trade and easier to prove that their products satisfy the standards and regulatory requirements of the other party. The UK has already signed MRAs with the US, Australia, Israel and New Zealand. There are sectoral agreements on insurance with the US and Switzerland, on wine with Australia, and the US. A range of air services agreements have been signed with the US, Canada, Switzerland, and Israel to name a few. The UK and New Zealand have rolled over the UK-NZ veterinary agreement. A distilled spirits mutual recognition agreement with the US (with whom there is a rapidly growing whisky trade) has been signed and a similar agreement is due to be signed shortly with Mexico.
It is true that there are issues with the Japanese and South Korean novations, but it is important to understand why this is the case. In the case of Japan, the Japanese recognise that the EU deal is not an ideal agreement in terms of Japanese trade policy. Japan has made concessions on data that do not suit its IP-based economy that relies on data flow. The Japanese would rather have the UK in the CPTPP arrangement rather than simply rolling over the agreement, and that would be in our interests too. They rightly don’t want the new EU-Japan agreement to be the basis for the UK-Japan trading relationship going forward. This is because Japan is particularly concerned about countries like its large neighbour, China, which are increasingly pushing anti-competitive and prescriptive regulations domestically and on the rest of the world. This would stifle their own innovative industries.
Like many global supply chain managers, Japan needs an open trading, pro-competitive regulatory environment. It sees the UK as potentially moving in that direction, and if the UK accedes to the CPTPP, it also sees a possibility that the US will one day return to the TPP fold. If the UK, US and new accession countries like Indonesia and South Korea accede to the CPTPP, then it will command 45% of the world’s GDP, and include the fastest growing countries in the world (compared to the EU27’s 20% assuming static performance over time, whereas it is likely that on current trends the EU27 will decline from this 20% figure).
Indeed, the Japanese may also think that their current negotiating position will prevent a “No Deal” situation arising. There is also a specific nuance with the EU-Japan agreement because it is a new agreement and the tariff cuts are only just starting, and the MFN rate applies to all UK and EU trade until January 2020 anyway. Whatever else is said, the Japanese are committed to a better agreement with the UK than the EU, but only want to go to the Diet for approval once with a better agreement. Other countries have complicated legislative processes too.
In the case of South Korea, they want to see more liberalisation from the UK than they secured from the EU, which is also to be expected. The UK can liberalise more than the EU, but does need a base line from which to operate. It is fair to say that the Koreans have been particularly affected by the confusion in Parliament regarding an extension of Article 50. Why should they negotiate with any urgency, if in fact there is no need to do so?
Additionally, both the Koreans and Japanese have given confused messages – on the one hand seeking more liberalisation either directly or through CPTPP accession, while maintaining that the UK should disturb their UK-EU27 supply chains as little as possible – two inconsistent positions. It would be better for all if these managers of global supply chains took the position that they wanted maximum trade openness between the UK and EU through a comprehensive, advanced FTA consistent with allowing their global trade ambitions of more liberalisation and pro-competitive regulation to be simultaneously fulfilled.
With regard to Turkey, the hysteria is even more divorced from reality. We could never negotiate anything with Turkey until we have actually left because Turkey is in a partial customs union with the EU. Nothing has changed there. It is not news that this particular agreement won’t be rolled over by March 2019.
Of course, if a deal can be agreed, the EU-X deals would continue to apply in their entirety until the end of the transition period. No-one wants a no-deal scenario, but the UK has made sufficient progress on rolling over some of the existing FTAs, MRAs and other sectoral agreements such that leaving without a deal would not be the disaster that some have painted.
We would of course continue this process after we have left the EU, and extend it to include further and deeper liberalisation. However, amendments like Cooper-Boles force other countries to assume that No Deal is in fact off the table, and so there is no point in drawing down political capital with their own legislatures if it not necessary – another example of the UK shooting itself in the foot, but that’s a mistake that is being made by those voices calling for No Deal to be taken off the table or for Article 50 to be extended. It cannot be laid at the door of the DIT. It’s a bit like sending your army into battle, but deliberately taking away its weapons.
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More attention is needed to be given the tariff policy Britain must adopt on leaving the EU on 29th March. It now looks likely that this will have to be without a withdrawal agreement. However, this has the advantage that Britain can shape its tariff policy from day one.
This is a responsibility that British governments have been able to avoid during the period of EU membership. Now they are regaining that responsibility, they must seize it promptly.
Before the end of March, the Government should publish a White Paper explaining that:
- It has sought to negotiate a withdrawal agreement, but unfortunately no acceptable agreement could be reached, so while the UK remains open to agreement, European leaders have ruled out further negotiation. This means the European Treaties cease to apply to the United Kingdom on 29th March 2019. Britain’s trade with the EU will then be governed by the World Trade Organisation agreements, which govern most of Britain’s trade already.
- The WTO agreements are international law and Britain will honour them in full. It expects the EU to do likewise.
- The EU will now be obliged to apply its Common External Tariff (CET) to British exports, treating the UK on equal terms with other third countries, on a Most Favoured Nation (MFN) basis. Tariffs must be accepted as a disadvantage, but it has now become a very minor one: on industrial exports from the UK to the EU, the CET averages about 3%.
- As far as British imports are concerned, Britain will not be obliged to charge import duties; but where it does so, it must charge a rate which treats all WTO members equally. Absent a withdrawal agreement the EU must be treated on the same basis as other WTO members. Britain will inherit tariff bindings, as a result of which its import duties cannot exceed those of the European CET.
- Importantly, however, Britain will be free after 29th March to reduce or eliminate import duties whenever it sees fit (see below).
- Apart from tariffs, the rule of the WTO for all other aspects of trade is non-discrimination. Non-Tariff Barriers are prohibited by the WTO so far as they afford protection to domestic production (GATT Art. III.1). So far as they arise out of the operation of internal laws (industrial safety etc.), all such laws must be applied equally: they must accord imports treatment “no less favourable” than that accorded to products of national origin (GATT Art. III.4). They cannot discriminate against imports from other WTO members.
The White Paper will explain the application of these rules carefully, emphasising that they are tried and tested by many years of practice worldwide. It will emphasise three key facts:
(a) that most of the UK’s trade is already conducted outside Europe, most of it under the WTO rules;
(b) that Britain trades more successfully outside Europe than within it; and
(c) that most of the EU’s trading partners worldwide trade with it under the WTO rules, and do so with success.
FIRST PHASE OF TARIFF POLICY: KEEPING TRADE FLOWING
After 29th March, the immediate priority will be to keep trade flowing in an initially uncertain environment. During this phase, the Government should suspend all import duties from all sources. The WTO rules allow this, provided the suspension is on an MFN basis.
This will mean that no inbound consignments are interrupted for tariff reasons.
SECOND PHASE OF TARIFF POLICY: ELIMINATING HARMFUL IMPORT DUTIES
Then, as it becomes clear that trade is flowing smoothly, import duties would be selectively reinstated, selectively reduced and selectively eliminated. This is the stage at which Britain’s trade policy will begin to take shape. It is important to emphasise that Britain will have no freedom to raise tariffs above their CET level. It will be tied by WTO bindings not to do so. Trade policy will take the form of selective reductions and eliminations of import duty, below their present CET levels – cuts which Britain can now make (and has hitherto been prevented from making) include the following:
- Foodstuffs will be imported free of all duties. Note that this is one of the principal benefits of Brexit. The present CAP duties are very high, often above 50%. Eliminating them would bring major reductions in food prices, to the benefit of families. It would restore the traditional British policy of leaving food untaxed. Many countries in the world are exporters of food. The return of Britain as a buyer of food in world markets will be seen as a major advance towards freer trade from the EU’s protectionism.
- Clothing and footwear. Duties should be cut to a maximum of 5%. Under the EU’s CET, these currently attract duties up to 20%. Again, the UK is a substantial net importer of these items and eliminating duties on them will bring major reductions in prices, to the benefit of families.
- Automotive components, parts and sub-assemblies. Duties should be removed. These currently attract duties of around 5%. Eliminating them will help UK assembly plants relying on supplies from Europe and Japan on a “just-in-time” basis.
- Semiconductors. These attract CET duties of 12%-15%. These should be removed. British IT industries are substantial net importers of semiconductors and are currently burdened by duties intended to protect continental suppliers.
- Other industrial intermediates, materials, components, sub-assemblies etc. Duties should be removed wherever the UK is a substantial net importer.
- Other products of any kind not made in the UK. Duties should be removed.
THIRD PHASE OF TARIFF POLICY: PREPARING FOR FREE TRADE AGREEMENTS
While it is making these unilateral tariff cuts, the UK should also announce its willingness to conclude free trade agreements with any willing partner on a basis of reciprocity, eliminating all import duties in both directions. This should apply to all the UK’s trading partners worldwide, not excluding the EU.
The detail of each negotiation will of course take time to tie down. However, the WTO Agreement allows GATT (Art. XXIV) the formation of interim agreements which can be brought into provisional application, and thus given early effect. In this way, tariffs can be eliminated in advance.
Negotiating priority should be given to:
a) suppliers of products which the UK needs to buy, where the European CET is high and where the British aim is to secure more affordable prices (e.g. foodstuffs from Argentina, New Zealand, clothing and footwear from China and India); and
b) promising markets where import duties against British exports are still high (as with India and China). One may note in passing that the EU comes into neither of these categories: EU duties against British industrial exports will be low (average 3%). A free trade agreement eliminating these will be of modest value and not worth paying too high a negotiating price to obtain. Meanwhile, Britain will have no need for expensive European food once supplies are available duty-free from other more reasonable suppliers.
Thus Britain will make important tariff cuts unilaterally, and others will follow free trade negotiations. Together they will add up to a significant liberalisation and a clear declaration that Britain, on regaining the right to direct its own trade policy, intends to drive it strongly in a liberalising direction. These tariff cuts would establish Britain as once again a beacon of freer trade, to its own benefit and to the benefit of its trading partners worldwide. It is important to send this signal immediately on Britain gaining the freedom to do so.
The post Here is the tariff policy the Government should announce for 29th March appeared first on BrexitCentral.
Many suggest that, despite it being made very clear at the time of the referendum that a vote to Leave the EU meant leaving the Customs Union, we should Leave the EU but remain a member of the – or a – Customs Union.
This would very much mirror the situation in which Turkey finds itself – and that itself should be a lesson as to why this is a bad idea and why going WTO on 29th March would be infinitely preferable by comparison.
A customs union with the EU means that the UK would not have its own trade policy. Therefore we would not be able to strike preferential agreements affecting trade in goods or services with other countries; we would not be able to set our own tariffs to suit the UK economy; and we would not be a full member of the World Trade Organisation. It seems extraordinary that any MPs and others can seriously believe that restricting the UK’s options in this way to be a good idea.
The second aspect of a customs union with the EU that I don’t think many MPs and others realise is that any goods exported to the EU or imported from there would still need to be covered by a movement certificate. This is detailed in the proposed Withdrawal Agreement on pages 342 to 353. The proposed A.UK document would appear to mirror the A.TR used for trade with Turkey. This document has to be completed by the exporter and then stamped by HMRC before being sent to the customer.
For businesses like mine which despatch large numbers of small consignments, we would need to employ an extra person just to complete these documents – which would be far more expensive than the cost of paying the applicable tariff. It could also potentially lead to delays in despatching urgent orders where – as is the case with Turkey – it is required that the stamped document accompanies the order.
Shipping under WTO rules, as we do to most of the more than 120 countries in which we have customers, requires no movement certificate, no pre-stamping, just invoices produced here. This means that orders are despatched on the day of receipt and in Europe and North America delivered next day customs cleared.
Ironically, this means that if the UK were in a customs union with the EU, our competitors in the United States would be able to supply our customers in the EU quicker than us. Their goods would have arrived with our customers whilst we would still be waiting for HMRC to stamp the A.UK movement certificate!
I think it is important to note that neither Norway nor Switzerland as members of the European Economic Area have shown any desire to be members of the EU customs union and have instead preferred to define their own trade policy, with great success. As one of the largest economies in the world, it seems extraordinary that we should even consider tying our hands in this way.
To me, as someone trading all over the globe, it would be madness being in any sort of customs union with the EU and we should maximise trade through simplicity and have no hesitation going WTO on 29th March.
The post Here’s why it would be madness to stay in a customs union with the EU appeared first on BrexitCentral.
There are undoubtedly many Remainers in the establishment who are determined to stop Brexit outright. Others are trying to create a fiction of Brexit that in reality keeps the UK in the EU in all but name. Many Brexiteers would like to see the UK leave without a deal, on WTO terms – a clean Brexit. After all, this is what was on the referendum ballot paper: it said Leave, it said nothing about a deal and David Cameron was explicit that there would be no further deals beyond his.
However, there are those in both camps who are prepared to countenance some sort of deal that would smooth the UK’s exit from the EU. What has unified many on both sides, however, is the awfulness of the deal the Prime Minister negotiated. For “alt Remainers” it did not achieve the objective of defeating Brexit outright, nor did it provide a good alternative to a clean Brexit. For Leavers, May’s deal was in many ways worse than staying in the EU. The deal is dead in its original form, quite likely in any form.
So, what should be Plan B?
“No deal is better than a bad deal,” promised the Conservative manifesto, as has the Prime Minister repeatedly in her many statements and speeches. This evokes unnecessary but real alarm amongst most Remainers. For some it is a useful tool to fulfil their Remain ambitions, for others a genuine concern that such an outcome will lead to significant disruption and economic harm. It would not, but perception is as strong as reality and perception has been nurtured and reinforced by the Remain media establishment, who have consistently and persistently framed a clean Brexit – the Brexit people voted for – as a “cliff edge”, as “crashing out” etc. How can this possibly be detoxified? Or made into an acceptable Plan B?
Ten days ago I visited Geneva to see the World Trade Organisation (WTO) to discuss practical aspects of a move to WTO trading terms. Having during my career done business on every continent and been involved in trade and international standards throughout, I was well aware of the efficacy of WTO-based trade terms, after all most trade the UK conducts with the rest of the world is WTO rules-based, as indeed is much of the trade the EU conducts, for example with countries like: the USA, China, India, Brazil, Australia, New Zealand etc. Nonetheless, it was instructive to hear from the “horse’s mouth” an obvious Plan B solution which would smooth the UK exit without recourse to a transition period, or to paying £39 billion, or to any restrictions on our removal of external tariffs and making trade deals around the world.
This solution has a weakness by comparison with just leaving in that it requires both parties, that is the UK and the EU, to agree; but there is a chance of success as it would be in the economic interests of both parties to agree. It is based on the use of Article 24 of the GATT under WTO (as explained in more detail by David Campbell Bannerman MEP on BrexitCentral on Sunday) whereby both parties would agree to operate current terms of trade in relation to, for example, tariffs for a period of time while a free trade agreement (FTA) is being negotiated. Provided both parties commit to an FTA and set out to negotiate one, this period of time can be many years.
This Plan B, which could be agreed quickly, would result in there being no tariffs between the EU and the UK at least until an FTA is completed: the current arrangements would simply continue, thus removing the objections of trade groups. It could be extended to customs arrangements, but would not require the UK to be part of a customs union, nor would it require the UK to be part of any of the EU institutions or constructs. The agreement would be between two sovereign powers under international WTO conventions and the UK would have properly left the EU.
If the EU were to reject this perfectly legitimate approach, it would be proof positive of their malign intent towards the UK – but they have every incentive to agree to it given the alternative of an exit on WTO terms without interim arrangements. It merely requires will to make it happen, there is no other impediment. So, why has the Government not adopted this simple approach as Plan B? It would seem, if they do not, that it is proof positive we have a Remain Government hell bent on remaining locked into the EU.
We have yet to see what the outcome of the days leading to 29th March will bring, but certainly it is open to our Government to seek to resolve this matter with a Brexit Plan B built like a springboard, rather than the mirage of a cliff edge.
The post There is a Brexit Plan B built like a springboard which the UK and EU both ought to embrace appeared first on BrexitCentral.
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