Last Wednesday - the 13th of July, there was a phenomenally dull but hugely important Treasury Select Committee meeting on the future of the UK’s relationship with the EU. The hearing was important not only because of what was discussed, but because it felt like one of the first landmarks in the Brexit process. It was a turning point in the discourse of the conversation from the rhetorical and populist debate that came before, to the complex practical realities of what is to come. It was at once a stark realisation of the enormity of the task we have set ourselves and a manifestation of the problems we will face whilst tackling it, because almost nobody turned up.
The panellists were Hosuk Lee-Makiyama – Director of the European Centre for International Political Economy, Shanker Singham – Director of Economic Policy and Prosperity Studies at the Legatum Institute, and Richard North – Member of the Leave Alliance (a beacon in the pre-referendum fog) and author of “Flexcit” - the most comprehensive strategy for exiting the EU that exists. The conversation was often impenetrable, covering many aspects of the road ahead with a level of detail and technical understanding not yet seen. It was in stark contrast to the efforts of Dominic Cummings, Aaron Banks and other high-profile leavers that earned them a roomful of attentive MPs and mass media coverage before the referendum. This time though, with panellists equipped with real expertise, the room sat empty and the committee frankly struggled to keep up. Whilst it is frustrating that it took a vote to leave the EU for these sorts of informative and productive exchanges to start happening, the reality is that the debate has now left the realms of comprehension for all but a select few, and certainly of our politicians. Andrew Tyrie called it our biggest political crisis since Suez, and he might not be far off.
There were enough points touched upon in the two hours to fill numerous textbooks, but some broad conclusions can be drawn. The most obvious is the sheer complexity of the choices we will face and the processes required to achieve them. There was clear agreement that invoking Article 50 early is in nobody’s interest, not until we have an idea of our desired future relationships with the Union and what the landing zone for the negotiations looks like. It was even suggested that the button should not be pressed until we have agreed an up-front extension of the negotiation period to five years. Mr Makiyama was conciliatory on this point, stating that anybody who knows anything about trade negotiations understands that artificial time constraints do not exist.
On trade arrangements, the issue of tariffs was dealt with swiftly: business can handle tariffs, grandfathering EU tariff agreements should be easy, and the tariff sections of new trade deals can be done in an afternoon. The conversation focussed instead on the more serious issue of non-tariff barriers, mainly relating to issues of standards compliance and Mutual Recognition Agreements (MRAs). Non-tariff barriers like these would be the main problem faced by exporters should we be unfortunate enough to fall back on WTO rules for trade with the EU. Without an MRA on conformity assessment it could no longer be assumed that our goods comply with EU standards, which would require additional documentation and potentially conformity checks on goods set to leave the UK. Many people have said repeatedly that you don’t need trade deals to trade, which is true, but without mutual recognition of conformity you may need new testing procedures at borders and a whole bunch of new paperwork, which is extremely problematic if you don’t have those things in place at the moment. Free trade deals typically include nothing about conformity or harmonisation of standards, in fact, TTIP is one of the only trade deals that does, and it now looks to be dead in the water. The panel repeatedly emphasised that it is non-tariff barriers and MRAs that should be the primary focus of trade negotiations, rather than tariff and quota focused bilateral trade deals.
There are further issues with the idea that we don’t need trade deals or that trade deals mean easy free trade. Free trade agreements almost never cover services, and there is no precedent whatsoever for having full services access to the single market without being inside it. The importance of services to our economy cannot be overstated. We can be optimistic about service agreements with places such as Australia or Canada, less so China or the USA where the regulatory frameworks differ greatly from our own. If our service access to the EU is hindered though, new service deals elsewhere will not make up for it.
In all, the hearing was wholly inconclusive, but made a good start in moving these discussions towards something we can move forward with. Two clear conclusions could be drawn however: firstly, the best landing zone for the initial negotiations would keep us within the single market. Of course life outside is possible, but the disentanglement of 40 years of integration and the establishment of new arrangements cannot happen within the initial negotiation period, Mr. North asserted it could take twenty years. Outside the single market, we would face regulatory and tax policy inconsistencies costing businesses far more than tariffs. The political havoc and economic disruption caused by falling out of the single market without these arrangements in place could not be reconciled for decades, no matter how big our ambition. Doing trade deals with other countries is the relatively easy part, it is securing our immediate and future relationships with Europe that will be the most difficult and important task in the first stages of the Brexit process. This is besides the fact that we are unable to actually sign trade deals until that relationship is secured, and the negotiation of these deals will be contingent on what that relationship looks like. Moving towards a Swiss or WTO-like scenario should be done from the relative comfort of some EEA-based position.
The second broad takeaway from the hearing is that all of this stuff is about to get really complicated. Interlopers like me can only do our best to keep up, then again, if we fall out of the single market, the complexity will be tenfold. Let’s get ourselves settled in the comfy waiting room of the EEA, and take our sweet time over everything else.
Full video of the Treasury Select Committee hearing: here.
Full transcript of the meeting here: here.
A handy summary of the meeting: here.
The panellists were Hosuk Lee-Makiyama – Director of the European Centre for International Political Economy, Shanker Singham – Director of Economic Policy and Prosperity Studies at the Legatum Institute, and Richard North – Member of the Leave Alliance (a beacon in the pre-referendum fog) and author of “Flexcit” - the most comprehensive strategy for exiting the EU that exists. The conversation was often impenetrable, covering many aspects of the road ahead with a level of detail and technical understanding not yet seen. It was in stark contrast to the efforts of Dominic Cummings, Aaron Banks and other high-profile leavers that earned them a roomful of attentive MPs and mass media coverage before the referendum. This time though, with panellists equipped with real expertise, the room sat empty and the committee frankly struggled to keep up. Whilst it is frustrating that it took a vote to leave the EU for these sorts of informative and productive exchanges to start happening, the reality is that the debate has now left the realms of comprehension for all but a select few, and certainly of our politicians. Andrew Tyrie called it our biggest political crisis since Suez, and he might not be far off.
There were enough points touched upon in the two hours to fill numerous textbooks, but some broad conclusions can be drawn. The most obvious is the sheer complexity of the choices we will face and the processes required to achieve them. There was clear agreement that invoking Article 50 early is in nobody’s interest, not until we have an idea of our desired future relationships with the Union and what the landing zone for the negotiations looks like. It was even suggested that the button should not be pressed until we have agreed an up-front extension of the negotiation period to five years. Mr Makiyama was conciliatory on this point, stating that anybody who knows anything about trade negotiations understands that artificial time constraints do not exist.
On trade arrangements, the issue of tariffs was dealt with swiftly: business can handle tariffs, grandfathering EU tariff agreements should be easy, and the tariff sections of new trade deals can be done in an afternoon. The conversation focussed instead on the more serious issue of non-tariff barriers, mainly relating to issues of standards compliance and Mutual Recognition Agreements (MRAs). Non-tariff barriers like these would be the main problem faced by exporters should we be unfortunate enough to fall back on WTO rules for trade with the EU. Without an MRA on conformity assessment it could no longer be assumed that our goods comply with EU standards, which would require additional documentation and potentially conformity checks on goods set to leave the UK. Many people have said repeatedly that you don’t need trade deals to trade, which is true, but without mutual recognition of conformity you may need new testing procedures at borders and a whole bunch of new paperwork, which is extremely problematic if you don’t have those things in place at the moment. Free trade deals typically include nothing about conformity or harmonisation of standards, in fact, TTIP is one of the only trade deals that does, and it now looks to be dead in the water. The panel repeatedly emphasised that it is non-tariff barriers and MRAs that should be the primary focus of trade negotiations, rather than tariff and quota focused bilateral trade deals.
There are further issues with the idea that we don’t need trade deals or that trade deals mean easy free trade. Free trade agreements almost never cover services, and there is no precedent whatsoever for having full services access to the single market without being inside it. The importance of services to our economy cannot be overstated. We can be optimistic about service agreements with places such as Australia or Canada, less so China or the USA where the regulatory frameworks differ greatly from our own. If our service access to the EU is hindered though, new service deals elsewhere will not make up for it.
In all, the hearing was wholly inconclusive, but made a good start in moving these discussions towards something we can move forward with. Two clear conclusions could be drawn however: firstly, the best landing zone for the initial negotiations would keep us within the single market. Of course life outside is possible, but the disentanglement of 40 years of integration and the establishment of new arrangements cannot happen within the initial negotiation period, Mr. North asserted it could take twenty years. Outside the single market, we would face regulatory and tax policy inconsistencies costing businesses far more than tariffs. The political havoc and economic disruption caused by falling out of the single market without these arrangements in place could not be reconciled for decades, no matter how big our ambition. Doing trade deals with other countries is the relatively easy part, it is securing our immediate and future relationships with Europe that will be the most difficult and important task in the first stages of the Brexit process. This is besides the fact that we are unable to actually sign trade deals until that relationship is secured, and the negotiation of these deals will be contingent on what that relationship looks like. Moving towards a Swiss or WTO-like scenario should be done from the relative comfort of some EEA-based position.
The second broad takeaway from the hearing is that all of this stuff is about to get really complicated. Interlopers like me can only do our best to keep up, then again, if we fall out of the single market, the complexity will be tenfold. Let’s get ourselves settled in the comfy waiting room of the EEA, and take our sweet time over everything else.
Full video of the Treasury Select Committee hearing: here.
Full transcript of the meeting here: here.
A handy summary of the meeting: here.
alex davies | |
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