Friday, 5 January 2018

Britain would do better to look to Ukraine than the Pacific

The need for realism about Brexit, suggested in my previous post, is underscored by the report this week that Liam Fox and the Department for International Trade are developing plans to join the Trans-Pacific Partnership (TPP). This – like joining NAFTA or creating hypothetical Commonwealth or CANZUK free trade areas – is the kind of idea that surfaces from time to time amongst Brexiters on social media, but so far as I know this is the first indication that it is being seriously considered.

The deficiencies of this idea should be obvious – there is a very big clue in the name. Regional trade agreements make sense for countries in a particular region, but not for countries on the other side of the world. Which is also why the TPP countries account for a very small percentage of UK trade currently and any further expansion by joining TPP would be trivial compared with the volume of UK-EU trade. In any case, the EU already has actual or in progress trade agreements with seven of the eleven TPP countries, including Japan, the biggest. Moreover, as Samuel Lowe argues in an article in Prospect, the TPP negotiations are already fraught and there is absolutely no reason to think that the countries involved have any interest in adding Britain to them, and certainly not whilst the terms of the UK-EU relationship are unknown.

In short, the whole idea is a non-starter and its meaning, if it has any meaning, seems only to be to avoid the reality – also mentioned in my previous post – that Liam Fox’s role is an empty one, at least until Britain is no longer bound by the EU Common Commercial Policy which is, at the least, several years off. But even if TPP were a viable option for the UK, it would only serve as a reminder of the limitations of the Brexit argument for ‘sovereignty’. All trade deals to some extent, and regional partnerships to a much larger extent, entail some loss of sovereignty. The ECJ is anathema to Brexiters, but TPP (like NAFTA and many other trade agreements) will make use of Investor-State Dispute Settlement (ISDS) systems which effectively by-pass national courts and are beyond public scrutiny or accountability.

The reality is that you can have trade agreements, or you can have complete sovereignty: you can’t have both. Indeed, a strong argument for the EU single market is that it embeds regional trade within a set of publicly accountable political institutions, including democratic institutions. Britain within the EU has far more control of its own affairs than will the ‘Global Britain’ envisaged by the Liam Fox and Boris Johnson version of Brexit. For that matter, the typical requirement of modern trade deals to liberalise immigration policy bodes ill for those who voted for Brexit in the belief that it would limit immigration.

By contrast with the nonsense about TPP, Andrew Duff has written an extremely interesting and incisive analysis of the Brexit situation on Policy Network. It is well worth reading in its entirety, but the particular aspect that caught my attention was the idea that the UK could seek to create a form of association agreement with the EU modelled to some degree on the Ukraine Deep and Comprehensive Free Trade Area (DCFTA).

This, in brief, would entail free movement of capital, goods, some services on a sectoral basis potentially including financial services, but not free movement of people; a customs agreement (including rules of origin) outside of the customs union and the common commercial policy, as well as co-operation on security and defence. There is no contribution to the EU budget, although contributions are made to specific agencies and programmes such as Erasmus (something the UK have already indicated a desire to do). I am not entirely clear what the precise implications of a DCFTA would be for the Irish border, but my assumption is that free movement of goods would help to resolve one of the key aspects of this issue and that, in general terms, the closer the partnership the softer any border would need to be. (For more detail on what the Ukraine DCFTA involves see, apart from Duff’s excellent article, the European Parliament’s briefing on the economic impact of Brexit, especially p. 24).

Taken together, this would seem to be something that could be called the ‘deep and special partnership’ that Theresa May has repeatedly spoken of but without giving concrete detail. It goes well beyond the Canada CETA both as regards trade and non-trade issues and is more promising than CETA for resolving the Irish border issue. The fly in the ointment for Brexiters, of course, is that the DCFTA model gives an ultimate, albeit arm’s length, role of arbitration to the ECJ, and a high degree of compliance with the EU acquis (and the more services sectors that get included, the higher the degree of compliance). Clearly the Brexit Ultras will immediately reject this model, therefore. But it is at least possible the UK government will be more pragmatic. Such a DCFTA would give many Brexiters a lot of what they want – including an end to free movement of people, an end to EU budget payments, and freedom to pursue an independent trade policy – whilst being far less economically damaging than CETA (let along no deal/WTO). In terms of ‘control’ and sovereignty, it is already clear from the phase 1 agreement on citizens’ rights that the ECJ red line will be crossed, and most likely it will also be for participation in the various agencies. In any case, as noted above, all international trade agreements entail compromises of sovereignty.

The reality is that if Britain is going to salvage anything from Brexit then the corner that May’s red lines have painted us into will have to be substantially breached. I speculated in my previous post that they seemed to have been drawn up entirely by Theresa May and her (pre-election) inner circle of advisers. Since then, I have been reading Tim Shipman’s fascinating book Fall Out (London: William Collins, 2017). In it he confirms this speculation, writing “it is extraordinary that these, the foundational decisions of Britain’s withdrawal strategy … were taken, in essence, by two people [May and Nick Timothy]. The cabinet certainly had no chance to debate them” (p.12). Extraordinary, indeed – and it would seem absurd, given all that has happened, since that they should be treated as sacrosanct, whatever the political difficulties of modifying or abandoning some of them. There are, after all, political difficulties in all scenarios.

Of course this is not just about Britain. As Duff explains, a DCFTA would also require some degree of compromise on the EU side and would not automatically be available to the UK. Still, he regards it as worth exploring as “the least bad choice”. If by that he means, as compared with, in order, EU membership and EFTA membership then I think I agree. At the very least it is a model which deserves to be more widely discussed and considered than it has been; doing so will certainly be more worthwhile than wasting time with fantasies such as TPP.

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