#eu27

There are now 6 weeks remaining for the UK and EU to come to some kind of Brexit arrangement, but so far the UK has not put forward a single workable concept. So lets take a moment and have an objective look at what the UK has proposed, because facts matter!

The Chequers Deal is violating international law and trade agreements

Still discussed at length in UK media, where it is unloved by Brexiteers and Remainers a like, it really was dead before arrival as the EU has turned the proposal categorically down. And unless you read exclusively British newspapers, nobody outside the UK has ever given it a chance to working. A position that never changed, despite May still beating this dead horse.

But this is not because the EU wants to punish the UK, it is because the EU’s hands are tied by international law. So lets have a look at the facts why the Chequers deal will never happen:

Giving the EU’s financial market a special status is illegal under WTO MFN rule. See: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

1.  Most-favoured-nation (MFN): treating other people equally  Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

This principle is known as most-favoured-nation (MFN) treatment (see box). It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4)

The four freedoms are inseparable. As defined in the Lisbon Treaty “Protocol (No 27) on the internal market and competition”. They are contributed to be largely responsible for the success of the Single Market, much more important to almost all remaining EU member states than UK market access, and nothing anybody would want to sacrifice. However, even if there was political will to change this, and I can not stress enough that there isn’t, it would require a change to the Lisbon Treaty. Thanks to the Irish population, who refused to ratify it if any future change would not also require a peoples vote. This means that the EU would need to hold a referendum, and the UK government would need to convince the population of all remaining member states to vote in a law that would give the UK more rights than themselves. The chances of that to happen are zero.

The Irish border. While there are no requirements under WTO membership to control a border, there are ones that require members to keep an accurate record about imports and exports and their quantities. (See TRQs.) This is effectively impossible without a hard border. The UK seems to have been made aware of this earlier in 2018 and has seeked legal advice: Published by the Times on the 28th of August https://www.thetimes.co.uk/article/wto-can-t-force-britain-to-create-an-irish-border-z6v8p5629 

“The World Trade Organisation has no immediate formal sanctions at its disposal if the British decide not to impose customs checks on the Irish border in the event of a no-deal Brexit, a leading trade expert has said.”

Just ignoring unconformable rules is an interesting take on international trade with almost immediate repercussions. But for this to work it would also require the Republic of Ireland and the EU to also break these treaties. And they will not.

All comprehensive Free Trade Agreements contain clauses that if one of the signatures is giving another nation a deal that is better, the other signature must also get that deal or can veto it. This makes perfect sense if you think about it for moment. Most FTAs are really about regulatory alignments as much as anything else. So if nation A is doing a deal with nation B, and nation B than makes a deal with nation C, that has for example much lower wages then A or B, nation C could use nation B to import its goods into A, circumventing any measures put in place by A to protect its workforce. Keeping this in mind, given what the UK is asking from the EU, countries like Japan, Canada or New Zealand could veto the Chequers deal. And who do you think the EU will priorities? Japans market alone is twice the size of the UK.

Don’t believe me, read yourself, see CETA chapter 30: http://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/

What about the WTO option, a.k.a. No Deal?

That is also impossible, this time due to the sovereign British Parliament. Who has recently passed the following act:

European Union (Withdrawal) Act 2018 - Section 10/(2)/(b)

create or facilitate border arrangements between Northern Ireland and the Republic of Ireland after exit day which feature physical infrastructure, including border posts, or checks and controls, that did not exist before exit day and are not in accordance with an agreement between the United Kingdom and the EU. http://www.legislation.gov.uk/ukpga/2018/16/section/10/enacted

The bill received Royal Assent on 26 June 2018.

So the same problem as above applies to the inner Irish border. And even if the UK is willing to break international law, the EU certainly isn’t. This is why the EU is now insisting on getting the backstop implemented above everything else.

Also keep in mind that just like Canada, Japan, New Zealand, etc ... can veto any EU-UK trade deal, so can the EU veto a potential Japan-UK trade deal. And given the Brexiteers rhetoric about slashing health, wage an environmental standards post Brexit, the EU will almost certainly be forced to do so, in order to protect its consumers.

Interesting side note, this option is referred within the EU as the North Korean Model. Take a guess why.

“CETA+++” and the land of the unicorns

As the deadline draws closer, this pipe dream seem to have resurfaced from the land of the dead. It is so absurd that I, or anybody else outside the UK, finds it hard to even take it serious. - Let me explain why.

A comprehensive FTA, like CETA or the Japan style deal, has always been seen as the only solution that doesn't violate the UK red lines. But a "+++" option was ruled out from the start and given that these types of agreements usually take 10 year to negotiate, a "CETA-" was the only option on the table.

The reasons for that are very similar to the ones highlighted under the "Chequers proposal" above. Not only can countries and trade blocks like the African Union, Canada, Japan ... etc review and veto any such deals, but all existing free trade agreements contain a clause like the WTO MFN. This means the moment you give one country, or block, a better deal, you also need to renegotiate all existing FTAs to give them the same conditions. (Read for yourself.) Given that the EU has currently trade deals with 2/3 of the planet, we would be talking about completely renegotiation world trade within the next 6 weeks!

I can not stress out how unrealistic this is.

On top of that, UK's number one red line - no more foreigners - or Freedom of Movement as the EU calls it, is one of the corner stones of any comprehensive FTA that includes services. And services currently account for 80% of the UK economy. (Again, read for yourself.)

And this isn't a new trend. When the EU and India started to negotiate about an FTA in 2010, take a guess which member state vetoed it because they were afraid of brown people. 

So who do you think is now restarted negotiations, and guess who is still demanding visa free travel as central demand on even a scaled down trade deal?

Visa leniency central to post-Brexit trade with India: UK business body

“The Confederation of British Industry said the Theresa May government needs to recognise the strong links between people and trade as the UK forges new economic relationships on the world stage after Brexit.”   https://www.hindustantimes.com/world-news/visa-leniency-central-to-post-brexit-trade-with-india-uk-business-body/story-v0CYWSwVzkYR8qhsFiUfsK.html

So in conclusion, the chances of a "CETA+++" deal can be best summed up with "there are no unicorns". Sorry, if that news comes as a shock to you.

The EU does not actually negotiate a trade deal with the UK.

On the 29th of March 2017, the UK has triggered Article 50. The EU is seeing this as a legal exercise. They are removing its institutions from the UK (EMA moved to Amsterdam, EBA to Paris, GMSC to Madrid). On top of that they have to find a way to divide up shared assets and deal with personal, libalities and the Irish border issue on behave of the Republic of Ireland.

But renegotiating the 759 treaties is not part of that process. Most arrangements could have been made before triggering Article 50, some will have to wait till after.

Under Section 3 of Article 50 of the Treaty of Lisabon it says; See: http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-European-union-and-comments/title-6-final-provisions/137-article-50.html

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

The EU is under no obligation to give the UK any deal.

So what realistic options does the UK have at this point?

The EU was always very clear that the UK has all feasible options available. And that has never changed.

Only the UK’s own red lines and Westminster Parliament have rule out all of them.

If the UK is willing to compromise on their arbitrary red lines, the following options are still possible based on what has been ratified so far:

The UK can remain a full member of the EU.

Stay in both the customs union and the single market or at least aligned to them. The main external objection to this is from other EEA members who believe the UK would destroy it just as a stepping stone. If sufficient guarantees could be made to ensure this is the end station for the UK, it should be possible to come to some EEA arrangement.

Extend the Article 50 deadline and negotiate a “CETA” like deal plus custom union membership. We are not talking about “+++”, but a standard FTA comparable to the existing ones. This would be the death of London as a financial hub and probably destroy most of the UK’s service industry.

Breaking up the United Kingdom. That way England, Wales and Scotland, if they so wish to, can form rest Britain and can do a clean break from the EU and effectively world trade. Northern Ireland and overseas territories plus Gibraltar would be free to set up their own arrangements, freed of English rules and red lines.

The EU27 are not prepared to even talk to us about the terms of our future trading relationship until the transitional or implementation agreement has been decided.  You may recall that they made a take it or leave it offer and it seems that we have agreed to absolutely everything.

We will remain in the EU Single Market and Customs Union for another 21 months, which will take us up to the end of 2020.  This coincides with the end of the EU’s seven year accounting period, which may turn out to be a significant point of time (please see the penultimate paragraph below).

Our net annual rate of contribution to the EU Budget is open to interpretation, but I’m going to work on a figure of £11bn.  We have already paid £8.25bn while valuable time was being wasted between the referendum in June 2016 and issuing the Article 50 letter in March 2017.  There is then the £22bn for the two years to March 2019, then £19.25bn for the 21 months to the end of 2020.

Annual contributions to cover “existing commitments” will continue for decades from 2021 at a reducing rate.  Unless I missed it, we have never been told clearly how much.  Also will any commitments undertaken by the EU27 between March 2019 and December 2020 be classed as “existing”.  We haven’t been told.

There have been a few rumours that our rebate of approximately £4.4bn for our last year in the Single Market will not be paid.  These rumours should be either confirmed or quashed now.

At the end of every seven year EU accounting period, they recalculate every contribution due and paid on a new basis which is retrospective to the creation of the Single Market.  David Cameron and George Osborne were taken by surprise around the end of 2013, insisted they would not pay and then (you guessed it) paid up.  Could the UK be caught by a surprise demand of this type at the end of 2020?  To be fair, it is theoretically possible that we could get a rebate, but we need to be told now.

I do not see how any likely free trade deal is worth all of these payments.  It’s looking more like Norway minus than Canada plus.  However, even this government should be able to see that there is one slightly less bad line of negotiation.  If the EU27 expect all of this money, they must give us the free trade deal we want on goods and services and do so quickly.  Otherwise, we will leave without further payments, which they need badly.  Of course, it won’t happen that way.  We may get Brexit, but it will be Brexit in name only and certainly not the Brexit we voted for.

"Lord King expressed regret and surprise that it was more difficult for a single country to present a united front than the other 27 EU members."

The EU27 and the euro area have surprised analysts with a stronger than expected recovery, and forecasts show a continuation of this trend for the foreseeable future.

This latest publication by the EPSC highlights some of the most prominent factors underpinning Europe's upward trajectory.

While the UK only seems interested in getting the best deal for business, this highlights the EU’s top priority:

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“To be precise, the European Parliament will remain vigilant regarding citizens’ rights and will continue to push for full rights for EU citizens in the UK as well as UK citizens in the EU. It is a core mission of the European project to protect, not to diminish, the fundamental rights of all citizens."

“The European Parliament specifically seeks to fully safeguard the rights concerning family reunion, comprehensive healthcare, voting rights in local elections, the transferability of (social) rights, and the rules governing permanent residence (including the right to leave the UK without losing this status). Simultaneously, we seek to avoid an administrative burden for citizens and want proposals which are intrusive to people’s privacy off the table, e.g. proposed systematic criminal checks.”

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Good read by Fabian Zuleeg ( @FabianZuleeg ) Chief Executive and Chief Economist.

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What is missing in these discussions is a real appreciation of the view from the other side of the channel. The assumption that the EU27 are willing to accept any deal to avoid Brexit is misguided. Not only are there red lines that they will not cross, but the clock is ticking as well. The time left to strike a deal is limited. It is for the UK to come up with workable solutions as otherwise the UK will end up with no deal at all. While this is also negative for the EU27, it is seen as the UK’s choice and not something that needs to be avoided at all costs.

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