The Single Market Is No Big Deal

AS the dust clears on PM Theresa May’s new cabinet, we are finally starting to see what the UK’s Brexit strategy will look like.

Yesterday David Davis was appointed Minister for Brexit (or Secretary of State for Exiting the European Union, as he will be called by no one, ever). Three days ago Davis wrote an article at Conservative Home setting out his favoured strategy. I would assume May read this before offering him the job. While the official strategy will need to be approved by the Cabinet, there is good chance it will look a good deal like this.

This is good for Leave voters. Here are some extracts. On freedom of movement:

Once the European nations realise that we are not going to budge on control of our borders, they will want to talk, in their own interest.

On access to the single market:

The ideal outcome, (and in my view the most likely, after a lot of wrangling) is continued tariff-free access.  … We should work out what we do in the improbable event of the EU taking a dog in the manger attitude to Single Market tariff free access, and insist on WTO rules and levies, including 10 per cent levies on car exports. … In that eventuality, people seem to forget that the British government will be in receipt of over £2 billion of levies on EU cars alone. There is nothing to stop us supporting our indigenous car industry to make it more competitive if we so chose.

On new trade deals:

Be under no doubt: we can do deals with our trading partners, and we can do them quickly.  … the new trade agreements will come into force at the point of exit from the EU, but they will be fully negotiated and therefore understood in detail well before then.  That means that foreign direct investment by companies keen to take advantage of these deals will grow in the next two years.

On regulation and employment rights:

At the moment all businesses in the UK must comply with EU regulation, even if they export nothing to the EU.  … To be clear, I am not talking here about employment regulation.  … The great British industrial working classes voted overwhelmingly for Brexit.  I am not at all attracted by the idea of rewarding them by cutting their rights.

This approach is pretty close to the one I advocated here. The essential point is that we must have the courage to say that freedom of movement and compliance with EU regulations are not on the table. They end when we leave. We are not going to be Norway. When that is accepted, we are approaching the EU as a external, friendly nation with which they do a heck of a lot of trade. Do they want a trade deal or not? Davis recognises the strength of our position: we could afford to walk away and trade under WTO rules.

The are a couple of common misunderstandings I would like to address. First, ending “freedom of movement” is not about ending movement, but about ending the system under which entering the UK to work is a legal right of every EU citizen, and therefore any attempt to deny it can be challenged, with the European Court having the final say. This is what has required us to allow suspected terrorists to enter, and prevented us deporting convicted criminals. As an independent state again, the decision of our Home Secretary and courts will be final.

We may in practice choose to allow many EU citizens to work here, but it will be at our discretion. The Australian points-based system that many Brexiteers have talked about is aimed at permanent immigrants. For EU citizens wishing to work here short term we will need a system of work permits with quotas, similar or identical to the one we now operate for non-EU workers. We will expect to be subject to something similar in the other direction. But there is no reason we can’t agree (either with the EU as a whole or in bilateral agreements with individual countries) that some categories of worker have an unlimited quota. In that case the issue of a work permit should be quick and easy.

The widespread concern about migration that came to the fore during the referendum campaign concerned the effect of mass unskilled migration on wages, housing and public services. Therefore we need quotas for unskilled workers. There is no reason why the comparatively small number of brain surgeons, bankers and software engineers who are used to plying their trade across european borders should be greatly inconvenienced.

Second, some people doubt the strength of our negotiating position on tariffs. To explain this I will look at the situation with car imports and exports in more detail. The UK (2014 figures) exports $46bn of cars every year, and imports $47bn. To see the trade balance with individual countries and regions, see this vey useful website:
http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/gbr/show/8703/2014/
http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/gbr/show/8703/2014/

You will see we export $22.3bn to Europe (including EFTA countries), but import $42.3bn. What would happen if these trades in both directions were subject to a 10% tariff? (The current EU external tariff on cars). That means we receive $4.2bn and have to pay only $2.2bn, a neat profit of $2bn, or £1.5bn at current exchange rates.

Of course it is not that simple. Because of the extra cost we expect the quantity of sales in both directions to drop. But the pound has recently dropped about 10%, so in fact our cars would be about the same price as before in the european show room. Nevertheless, lets assume that sales both ways drop 20% (it doesn’t matter what figure you use). Then our car manufacturers have lost $4.4bn of sales. Europe has lost $8.4bn, but even so, won’t British workers lose their jobs?

Hold on a minute! Our consumers are also short of $8.4bn worth of cars they used to buy from Europe. Where will they get them from? We may import them from elsewhere in the world. But if we replace French and German cars with Japanese, the nearest place Japanese cars are manufactured is … Derby (Toyota), Swindon (Honda) and Sunderland (Nissan). So the most likely outcome is that UK car production actually increases to meet the domestic demand.

That looks like a win-win. We gain from the tariffs and increase our car production, employment and profits, also increasing inward investment from companies manufacturing in the UK. You may think this is too good to be true. If tariffs are so great why does anyone want to eliminate them in the first place? But of course not everyone does. The reason governments are always tempted towards protectionism is precisely because, where you have a trade deficit, you gain in the short term by imposing a tariff in exactly the way I have shown. Where you have a trade surplus the opposite is true.

Don’t however fall into the fallacy that only exports are beneficial and imports are somehow bad. Actually UK consumers benefit from buying German and French cars and reducing that trade is not in our long term interests. But in the short term, if the EU wants a trade war, they really have nothing to threaten us with. It is not just that it will hurt them more than it will hurt us. It will hurt them and positively help our economy. Brer fox, please don’t throw me into that briar patch!

We don’t need to be a member of the Single Market. Indeed we don’t want to be, since that includes freedom of movement and compliance with EU laws and regulations. What we want is a trade deal, with tariff-free access or as close to it as possible. But if the EU wants to impose some tariffs for political reasons, that is fine too. We will match them, and within a few years common sense will prevail and bring them back down as close to zero as makes no difference.

Shenanigans

KyleShenanigans

A thousand lawyers have written to the PM to say that in their opinion the referendum result is merely “advisory” and that the decision to leave the EU or not must be decided by a vote in Parliament. Detailed legal arguments are lacking, and the exercise rather reminds one of Einstein’s response that, if he were wrong, “one would have been enough”.

The legal firm Mishcon de Reya has also written to the Government on behalf of a number of  (thus far anonymous) clients, in similarly vague terms.

A good take down is provided by Lawyers for Britain. This is my take on it.

Royal Prerogative

The power to make, break and act under treaties is exercised by Government Ministers using the Royal Prerogative (RP). Parliamentary approval is not, in general, required. There are two situations in which a Minister would need to go to Parliament:

a) For a decision that modifies an existing Act of Parliament. This would apply to repealing the European Communities Act (ECA), which would immediately take us out of the EU. But it does not apply to invoking Article 50 of the EU Treaty (A50), which leaves the ECA untouched, and keeps the UK in the EU during the stipulated two year period. A50 was added to the EU treaty by the Treaty Of Lisbon in 2007 and this was incorporated into UK law in 2008. So Invoking A50 is something that we do under the provisions of the EU treaty and the ECA and as such comes under the RP.

b) On matters where Parliament has explicitly required its approval to be sought. Some provisions of the Lisbon treaty are indeed subject to such a requirement, but A50 is not one of them. If Parliament wished to restrict Ministers ability to invoke A50 this would have been debated in 2008.

That is the dry legal argument pretty much out of the way. The PM has the power to invoke A50 and no approval by Parliament need be sought. There is really no serious doubt about this under UK law as it stands, and unless the signatories are hoping for an act of judicial activism of American proportions they are wasting everyones time. The constitutional points go deeper and are perhaps more interesting.

The description of the referendum as “advisory” is loaded. What is clear is that the referendum did not have any direct legal effect, such as repealing the ECA or invoking A50, in its own right. A court would certainly rule that neither event happened on 24 June this year. But is is equally clear that it was always intended that the referendum result would be binding on the Government, and that the decision of the people – in which ever direction – would be implemented.

Manifesto

The UK does not have a written constitution. But it is a long standing principle that a Government has a mandate to implement its manifesto commitments. The Conservative General Election Manifesto of 2015 said:

“We will negotiate a new settlement for Britain in the EU. And then we will ask the British people whether they want to stay in on this basis, or leave. We will honour the result of the referendum, whatever the outcome.”

Referendum Act

Parliament passed the Referendum Act in 2015. It was made absolutely clear by the Government that the matter would be decided by the referendum and would not come back to Parliament. The word “advisory” appears nowhere in the Act or in the debates.

Mr [Philip] Hammond [Foreign Secretary]: …whether we favour Britain being in or out, we surely should all be able to agree on the simple principle that the decision about our membership should be taken by the British people, not by Whitehall bureaucrats, certainly not by Brussels Eurocrats; not even by Government Ministers or parliamentarians in this Chamber. The decision must be for the common sense of the British people. That is what we pledged, and that is what we have a mandate to deliver. For too long, the people of Britain have been denied their say. For too long, powers have been handed to Brussels over their heads. For too long, their voice on Europe has not been heard. This Bill puts that right. It delivers the simple in/out referendum that we promised, and I commend it to the House.

So it is clear that Parliament, in approving the referendum, was approving the intention of the Government to implement the outcome. Any MP who did not accept this would have had to vote against the Bill at second reading. Only 53 did so.

This promise was repeated during the referendum campaign itself in the leaflet (costing £9.5m) delivered to every household on behalf of the Government.

This is your decision.  The Government will implement what you decide.

At no stage was it suggested that the referendum would be “advisory” and that the actual decision would be taken by Parliament. Given the promises made and repeated it seems unarguable that, while the referendum result does not have a direct legal effect, it is constitutionally and morally binding on the Government to implement it.

This is the first UK referendum to be answered in favour of change, so there is no precedent for what would happen if the Government or Parliament refused to implement the result. All that can be said for certain is that it would be regarded by those who voted Leave, and no small proportion of those who voted Remain, as a constitutional outrage.

 

The Blame Game

An article at Campaign  Agencies’ anger at failure of Stronger In campaign gives an insight into what the advertising and public relations agencies employed by the Remain campaign think went wrong.

 
It is worth reading in full, but in summary the agencies are blaming the politicos for a lack of strategy and poor management. They seem to have a point, but I can’t help thinking that the the EU was a difficult product to sell because it is rubbish. Project fear was a losing strategy, but there really wasn’t a better one.

At some point maybe someone (ideally the PM) should have thought, if we can’t find a strong message to sell this to the British people, maybe we should not be selling it?

OK I like this idea of looking at EU membership as a commercial proposition. What is being sold?

a) free trade with your nearest neighbours
b) trade deals with the rest of the world

what is the price?
1) A hefty membership fee (~1% of GDP) some of which you get back.
2) A bloated regulatory regime that applies to all your commericial activity (not just the part that involves trade with your neighbours)

3) A common external tariff that makes your imports more expensive
4) You are not allowed to make your own 3rd party trade deals
5) Subjugation of your courts and parliament to an external power
6) Loss of control of who you let in to your country
7) Eventual political union

Why is this a rubbish proposition? Because everywhere else in the world you can have (a) essentially for free with none of the other baggage. The price of getting tariff free access to other peoples markets is that you must allow tariff free access to yours. It is mutually beneficial, there is no need for the other stuff.

On (b) the EUs trade deals with the rest of the world are rubbish. No deals with the next 5 biggest economies. (US, China, Japan, Brazil, India). It is almost like they don’t really want free trade with the rest of the world. Because they don’t. And you can’t do your own trade deals.

Other matters such as cooperation on security and crime, air traffic control, reciprocal health care, mobile phone roaming, whatever, the rest of the world just deals with as bilateral or multilateral agreements because again it is mutually beneficial to do so. No need for a political union or a supra-national court.

This is why it will not be long before everyone else figures out it is a rubbish deal and leaves too.