Wednesday, 29 June 2016

Brexit process - next steps

After sharing some observations on future negotiations, freedom of movement and trade agreements in my previous post, it's time to turn to what needs to happen next.

Article 50
Media reports in recent days have shown that a long recommended prelimary action to commencing the Brexit journey, namely holding informal withdrawal discussions with individual member states prior to making a formal withdrawal notification to the European Council in keeping with Article 50 of the treaties, has been ruled out by Angela Merkel.

Therefore David Cameron's replacement as Prime Minister, who should be announced on 9th September after the Conservative party leadership election, should issue the formal notification of withdrawal from the EU before the end of September. The only good reason for a delay in the Article 50 notification was to prepare the UK's position and establish a foundation for the formal negotiation. With that off the table, we should be looking to begin the process as soon as possible. Article 50 must not be delayed.

It isn't ideal, but given the circumstances it is the approach we need to take. However we need to remain mindful that some of the current people on the EU side who will need to approve any deal between Britain and the EU, may not be in place by October next year thanks to the forthcoming French presidential election and the German federal elections. It may be that any newcomers prove to be more amenable than the current people to the deal that may be negotiated. But there is a risk the opposite may be true and that negotiations might need to revisit some areas previously hammered out.

Because of this it would seem Britain has a reasonable case for requesting a unanimous agreement to extend the two-year negotiation period at an early stage, to account for any possible changes to the members of the Council. Both sides stand to benefit from a deal so there would mutual interest in an amicable approach to extending the negotiation period. But to reiterate, Article 50 must not now be delayed.

A word on freedom of movement
While one third of people who voted to leave said ending freedom of movement was their priority, the national priority is protecting jobs in this country, maintaining existing unrestricted trade and financial services passporting with European Economic Area (EEA) countries and safeguarding our economy. Freedom of movement should not be put before such fundamental matters, rather it can be addressed once Britain has secured continued participation in the EEA. We must not put the cart before the horse.

There was far more to EU governance over Britain than just trade. But it remains a hugely important aspect. If we leave the EU without a deal, simply to achieve an end to freedom of movement, the consequences for the economy will be severe and long lasting. By just having a gap period between Brexit and a formal agreement with the EU, exporters will find there is nothing in place that confirms their conformity to regulations. They will also find that usual shipping routes for goods no longer have customs facilities or the staff needed where the EU's inspection of goods can be carried out before passage can continue.

There would be many more damaging issues besides, impacting timely delivery of goods and the costs to exporters. As such some things, like freedom of movement, need to wait until we have resolved essential commercial considerations like these. It is why freedom of movement comes in a later stage of the Brexit journey. Resolution won't come immediately, but it will come. We just need to priortise as we unpick 43 years of EU entanglement.

It needs to be stated that becoming signatory to the EEA agreement as a non-EU country brings with it unilateral ability to act in the national interest, courtesy of Articles 12-113. It gives Britain the scope to put restrictions on free movement. One EEA signatory, Liechtenstein, has negotiated a defacto end to free movement and instead applies a quota to EU nationals becoming resident in the country. While their circumstances are unique, it demonstrates there is a flexibilty in the application of the agreement that Britain can pursue.

EFTA (section updated at 15:30 on 29/06)
The first step to maintaining continued participation in the EEA is to join the European Free Trade Area (EFTA). The only countries that can participate in the EEA are the members of the EU, and the EFTA countries that join on an individual basis. Not only is EFTA the key that opens up the door of possibility of continued EEA participation, but it is one of the largest trade blocs in the world. So the government should be preparing an application to join right away.

Iceland will be heading EFTA from next month and will also be taking its turn in the rotating leadership of the EEA too, and they have stated the Icelandic leadership will place a particular emphasis on EFTA relations with the UK. Reports in the Norwegian press from this week's EFTA meeting, say that the Swiss Federal President Johann Niklaus Schneider-Ammann and the Icelandic government are both in favour of inviting Britain to rejoin EFTA (which we left in 1973 to join the EEC). Liechtnestein's position is less clear. There is a bit of concern about upsetting the EU of course.

Norway however will need to be won over. Its pro-EU government (at odds with anti-EU Norwegian voters) has been disappointed by Brexit. Norway doesn't currently share Switzerland and Iceland's warmth for the additional strength British inclusion would bring, and it is concerned about the changed dynamic of EFTA in forging future agreements with third countries. Ironically for a government that is keen to join the EU, Norway's concern centres on losing its influence in EFTA if Britain joins! So there is work to do. But that should begin right away.

It is important to point out that most WTO member countries are part of a regional trade agreement of some kind, and after Brexit it makes sense that Britain should be too. EFTA would be a very good fit. Accession to EFTA would also make Britain party to EFTA's 25 free trade agreements covering 36 countries unless any of those raise an unlikely objection. Unlike the EU's member states, EFTA members are free to negotiate bilateral trade agreements with any country or bloc they want. This means Britain's rediscovered globalist view and desire to make new agreements without the EU's straitjacket would not be at odds with EFTA membership.

Domestic focus
What should give serious cause of concern is the Conservative party leadership contest. While most Tory MPs supported David Cameron's remain campaign, most members supported leaving the EU. The runners and riders to replace Cameron include MPs who are hostile to Brexit and MPs who support the very worst outcome for Britain, that of leaving the EEA completely and assuming WTO Most Favoured Nation (MFN) status. As such that doesn't leave much room for people who would promote the common sense vision of retaining EEA participation.

The Flexcit plan, and its scaled down version known as The Market Solution, for which an EEA-based option is 'shorthand', is already in the hands of some senior civil servants. But it would make sense for it to also find its way to more senior civil servants across all major departments, along with the the clerks and chairmen of various Parliamentary standing and select committes. By becoming acquainted with the plan and its rationale, and understanding why it bears the least risk to Britain after Brexit, we may be able to help guide senior MPs into make it the roadmap for the post Brexit settlement.

Now the electorate has spoken, the government and the civil service have a duty to fight for the best possible settlement for Britain. That, by far and away, is an agreement that maintains EEA participation, as set out in the section above on freedom of movement. Many on the remain side already acknowledge this and have been explaining why in various blogs and newspaper articles. This is very welcome and demonstrates there are cooler heads looking ahead to making our future successful.

So that is a summary of the next steps we need to take. If we are to de-risk Brexit and do the best for our country, this is the approach needed.

Sunday, 26 June 2016

Observations on future negotiations, freedom of movement and trade agreements

Dr Liam Fox, speaking on the Sunday Politics, said that he would like Britain to exit the EU on 1st January 2019. To achieve Brexit in that timeframe, an Article 50 notification would need be made no later than the end of December this year, and all matters would have to be resolved without the need for an unanimously agreed extension to the negotiation period.

This is the equivalent of putting the cart before the horse. Fox is putting the timeframe before the outcome. That is worse than wrongheaded. The most important element of this whole process is not the timing, but Britain getting an agreement with the EU that serves the interests of both, and that the agreement ensures continuity of market participation to protect British jobs, trade and the economy. That should come first, not the timings.

It is worth making clear that the timing of the notification to the European Council of our intention to leave the EU, under the terms of Article 50, is entirely a matter for the withdrawing country. The EU cannot compel Britain to make formal notification and cannot dictate the timing of it. Much needs to be done before making the notification, to ensure we are prepared and ready with a clear agenda and understanding of what can be done and compromises that may need to be made. That is in the interest of Britain and the EU. (Update on 29/06: Angela Merkel has since ruled out informal preliminary discussions, therefore our approach needs to change and is covered here.)

So, what of that negotiation? People in the media and on the remain side keep saying the EU won't give Britain a good deal as they will want to punish us, partly for our decision to leave, and partly to dissuade any other EU country trying to follow suit, (Pausing for a second, just what kind of entity is it that tries to preserve its membership by resorting to intimidation and fear? Certainly not a healthy, democratic or benign one). 

Those people are either unaware of, or ignoring, one extremely important constraint. International law, and the rules of the European Union itself, require that the negotiation with a withdrawing state must be carried out in good faith. This prevents the EU from inflicting retribution on Britain. In addition to that the EU, in its own words is "committed to liberalising world trade". After its deal with Japan, the EU restated it is "committed to creating a free, fair and open international trade". Those stated commitments bind the EU to working with Britain to achieve a positive and mutually beneficial deal, such as supporting Britain's continued participation in the single market after joining EFTA.

One expectation of many leave voters is that leaving the EU will bring about an end to freedom of movement. Realistically that is not something that can happen immediately. Brexit is a process, not an event. The immediate aim of leaving the EU to regain control over our nation's affairs but preserving jobs and trade by staying part of the single market, is best served by continuing freedom of movement for now.

However, many people do not realise that remaining part of the single market after leaving the EU does give Britain the ability to control freedom of movement in a way we cannot inside the EU. This is borne out by the example of Liechtenstein. This tiny country, like Norway and Iceland, is an EFTA member state and participates in the single market as a signatory of the EEA agreement. But Liechtenstein has suspended the full application of freedom of movement and has instead applied a quota system for migrants. This is something that could work well for Britain, giving control over EU migration that we could not otherwise have.

Liechtenstein's arrangements were formalised in 1999, and in 2015 it was concluded that there was no need to alter the current rules. That meant the provisions adopted by Liechtenstein on the so-called "sectoral adaptations" could remain unchanged. Having applied these arrangements for 17 years there is no suggestion that it should be discontinued. As a full non-EU contracting party to the terms of the EEA agreement, it follows that what can legally be applied there can apply to any non-EU country participating in the EEA who wish to adopt the same. It's not perfect, but it can be a very effective holding position while Britain starts the much longer task of negotiating a truly comprehensive trade agreement with the EU that would make EEA participation unnecessary longer term.

While all this is going on, some on the remain side and in the media claim that we would need to re-negotiate all 40 trade agreements made with other countries by the EU on Britain's behalf while we were a member state. Only that isn't correct.

The established principle in international law called presumption of continuity will give Britain the ability to continue trading with those 'third countries' on the same terms as we did before we left. The reunification of Germnay in 1990, the velvet divorce of the Czech Republic and Slovakia in 1993 and the handover of Hong Kong in 1997 all provide precedent to this principle. All Britain needs to do is agree to honour the treaty obligations to which it was party as an EU member state. 

Britain can follow the example of Slovakia, which sent a letter to the Secretary General of the United Nations stating their intent to remain a party to all treaties signed and ratified by Czechoslovakia, and to ratify those treaties signed but not ratified before dissolution of Czechoslovakia, and that under international law all treaties signed and ratified by Czechoslovakia would remain in force. 

Added to this, EFTA membership allows a state to have two sets of trade agreements – ones negotiated by the state itself and others negotiated by EFTA as a bloc. By way of an example, Switzerland has a trade agreement with China, but EFTA itself does not. So by joining EFTA we would automatically become party to trade agreements signed by that bloc which would add to the agreements we would already have, giving Britain a greater number of agreements than enjoyed by any EU state.

Taken together, following a responsible and phased approach to untangling over 40 years of EU membership does not necessarily entail all the pain and consequences some would have us believe. It's a long road ahead and by navigating it carefully, in the interests of our people and our business sector, we can make the experience positive and rewarding.

Saturday, 25 June 2016

We've voted to leave. So...

Welcome to the new blog. We've moved past the campaign and the vote and as attention moves to executing a Brexit from the EU so it is the blog should move with it.

The political fallout of Thursday's stunning vote to leave the EU is a long way off settling. While the recriminations, denials and shock continue, we have to start looking at the next steps and their timings.

Regardless of claims to the contrary from some political figures, who have been badly misled about what is actually legal and what is in Britain's best interests, there is only one legal and treaty-bound way of beginning the withdrawal process - and that is sending a formal notification to the European Commission that the United Kingdom will be leaving the EU. This is set out in Article 50 of the consolidated treaties.

David Cameron claimed that in the event of a vote to leave he would make that notification immediately, triggering a two-year negotiation period with the EU. Thankfully, Cameron decided to resign instead so that someone else could perform the withdrawal duties he was loathe to do.

The media has been reporting that European leaders want negotiations over Britain's separation to start immediately. Some have suggested we are obliged to give the notification without delay. But the fact is there is nothing in the treaty that says when  the government has to give notification to kick start the two-year period. The decision regarding when to invoke Article 50 rests exclusively with Britain. And there are also some very good reasons not to rush to notification yet.

First, the UK is not anywhere close to being ready for the formal negotiation, and before it is triggered, the government and its negotiators need to speak individually to each member state to clarify what we and they want to achieve. Second, next May sees the French presidential election and between August and October the Germans will be electing their new government. If we invoked Article 50 now, we would be starting negotiations with people who may be replaced by others who may pursue a different approach, possibly rendering the first year of talks a waste of time and running down the clock.

While we wait for the French and Germans to deal with their elections we should be talking to other member states. It's the opportunity to reassure them about our intention to be a close friend and neighbour and to cooperate in mutual interest, beginning with a continuation of single market participation to the benefit of all parties.

We should also be preparing an application to join the European Free Trade Association (EFTA). EFTA member states are able to individually participate in the single market and having left the EU we would need to be in EFTA to be able to maintain market participation. This will be reassuring to businesses, non-EU investors and the financial services industry as it would mean no change to our current economic and commercial dealings.

The government should be getting ready for what comes next, both in terms of approach to the impending negotiations with the EU and EFTA, and also the training and readiness of civil servants who will need to upskill rapidly as Britain resumes responsibility for future dealings with other countries and speaking with our own voice on global bodies. That's plenty to be getting along with in the coming months.