Brexit: the ‘Sunderland Option’

Below are to be found:

(a) the introduction to the paper “Brexit and the Single Market”, which was first published in July 2016. http://www.rpieurope.org/Publications/Yarrow_Brexit_and_the_single_market.pdf. 

(b) a section of the paper’s text located under the heading ‘Response speeds and asymmetries of power’, included now (28 July 2019) because of its potentially very high salience in current circumstances (on first publication it was scarcely noticed), followed by a few comments on the reasons for its suddenly elevated salience.

In my mind I think of it as the ‘Sunderland Option’ because it was conceived in the minutes following the Sunderland referendum declaration at around 00.20 on 24 June 2016.  The sentiment was: “OK, that’s a definitive answer from my home city and the task now is to figure out how to satisfy these aspirations in the best way possible.”

Looking back now (July 2019), the one big thing I would change in the text would be to make a very firm distinction between what are, in fact, two variants of the ‘Single Market’ that have subsequently been conflated: the EEA and the EU Internal Market. Speaking roughly, the former is aligned with Mrs Thatcher’s vision of the Single Market and the latter with Mr Delors’s vision.  The UK will exit the latter automatically upon withdrawing from the Treaty of Lisbon, but will not automatically exit the former.  The act of Brexit will therefore automatically separate the wheat from the chaff . The ‘Sunderland Option’ in effect says “hang on to the wheat: it will be of considerable value in seeing us through the next period”. 

 

Preface to “Brexit and the Single Market”

Summary of main points

The UK is currently a Contracting Party to the European Economic Area (EEA) Agreement, and exit from the EU does not necessarily imply exit from the Single Market (i.e. withdrawal from the Agreement). Exit from the EEA would require that extra steps be taken, either unilaterally by the UK or by the other Contracting Parties to the Agreement.

There is no explicit provision in the Agreement for the UK to cease to be a Contracting Party other than by unilateral, voluntary withdrawal, which requires simply the giving of twelve months’ notice in writing (Article 127). A commonly held assumption that only EU and EFTA members can be Parties to the EEA Agreement – and hence that the UK has to be a member of one or other of these two organisations to be in the Single Market – is not well grounded, although UK consideration of an application for EFTA membership is an option well worth exploring in its own right.

In the absence of a prior withdrawal notice or of steps by other Contracting Parties to try to force UK exit (of a nature not yet identified and not necessarily feasible in the light of the Vienna Conventions on the Law of Treaties and on Succession of States in respect of Treaties), on Day 1 of the post-Brexit era the default position appears to be that UK would still be a Party to the EEA Agreement.

This has major implications for any future negotiations. For example, with continuing UK participation there would be no requirement for an application for “access” to the Single Market.

Should the UK choose not to withdraw from the EEA there would be need for some textual adjustments to the Agreement, if only to reflect the UK’s changed status as a non-EU Contracting Party. The more substantive implications of continuing participation concern the operation of the institutions supporting the non-EU Contracting Parties – Iceland, Liechtenstein and Norway – not the EU institutions. Early discussions with the governments of these three countries are indicated: they need not await Article 50 Notification.

Continued participation in the EEA following Brexit would see substantial repatriation of powers covering the areas of agriculture, fisheries, trade policy, foreign and security policy, justice and home affairs, taxation, and immigration, consistent with the strong desire of many Leave voters to ‘take back control’. It would, for example, give the UK freedom to negotiate its own trade deals and set its own tariffs, as well as dispensing with the egregiously protectionist common agricultural policy.

Immigration is the most vexed issue, not least because of the difficulties in establishing a reasoned discourse on relevant matters. The underlying problem concerns the interpretation and application of the principle of free movement of persons, in respect of which EU political leaderships tend to favour a rather fundamentalist, ‘non-negotiable’ position, motivated by the goal of political union.

The EEA Agreement does not treat the ‘four freedoms’ (of goods, persons, services and capital) as absolutes. In each case it provides for limitations to be imposed when justified by some other aspect of public policy. Importantly, for non-EU Contracting Parties to the EEA Agreement the ‘decision maker of first instance’ is the relevant State, not the European Commission.

The commercial aim of the EEA Agreement affects the interpretation and application of the free movement principle in consequence of its significance when determining what measures can or can’t be justified. A ‘political’ interpretation and application of free movement of persons is not well adapted to the aim of the EEA Agreement set out in Article 1(1). Given this misalignment, free movement of persons is almost inevitably a highly contested issue.

Nevertheless, the Agreement provides scope for unilateral action on free movement of persons that is not currently possible for the UK as a member state of the EU. Post-Brexit the Agreement would allow scope for at least some degree of re-alignment of interpretation and application of the free movement principle to better fit with commercial policy objectives.

In relation to budgetary payments by the UK, the default position appears to be a zero contribution from Day 1 of the post-Brexit era, if the UK opts not to withdraw from the EEA Agreement. This again affects the negotiating position. If the UK subsequently agrees to make financial contributions it should expect a quid pro quo, for example increased influence in the rule-making process for the Single Market and/or more explicit recognition of greater flexibility in the interpretation and application of the free movement of persons principle (whilst still pledging allegiance to the principle itself). Such developments would also be of benefit to the other non-EU Contracting Parties, and arguably to EU Contracting Parties as well.

Crucially, the EEA Agreement does not foreclose future policy developments of the types suggested by those who favour immediate exit from the Single Market: it simply leaves those other options available for future consideration and possible adoption, allowing ‘market testing’ of new policy approaches in the interim. On this basis continued participation in the EEA Agreement can be said to be sufficient unto the day.

Such optionality coupled with the faster response speed of the UK governance system amounts to an asymmetric competitive advantage over the EU in policymaking, which serves to counteract the asymmetric disadvantage of smaller market size. The overall imbalance in power in Single Market rule-making is therefore somewhat less than it might appear at first sight.

The aim of the EEA Agreement (set out in Article 1(1)) is highly consistent with the longstanding aims of UK commercial policy, steady and dogged pursuit of which could be a stabilising factor that, inter alia, serves to reduce political uncertainty in markets.

 

From the section headed ‘Response speeds and asymmetries of power’ 

…  A second identifiable factor is the relative response speeds of different Contracting Parties in the face of unwanted conduct by others, i.e. the speed with which they can adjust their own policies in reaction to unwanted conduct by others. A fast response speed is a distinct advantage to whoever can command it. If the possessor is a dominant economic agent, it tends to reinforce the asymmetry of power and provide greater incentives for the use of that power; if the possessor is a weaker economic agent, it tends to mitigate the asymmetry of power and give rise to weaker incentives to use that power in the first place.

The UK’s governance arrangements can, when needed, be remarkably speedy by international standards: the system has what might be called a low inertia mode that can be switched on when circumstances dictate. In contrast, EU rule-making is a relatively cumbersome and slow process, which is unsurprising and difficult to avoid in a structure with so many members with differing interests. …

Comments

Game theory provides a conceptual framework for strategic thinking in the military arena as well as in economics and indeed one of key readings for my own postgraduate lectures in the 1980s used to be Thomas Schelling’s ‘The Strategy of Conflict’.  That highly readable book (with a central theme deriving from Odysseus and the Sirens) was concerned mostly with US cold war strategy, but the shared conceptual framework is indicated by the fact that Schelling was subsequently awarded the Nobel Prize in Economics.

In the military field the importance of differential response speeds in determining outcomes has been particularly emphasised by the US Air Force strategist John Boyd, who argued that a key strategic advantage flows from being able to create situations in which it is possible to make appropriate decisions more quickly than opponents. 

‘Brexit and the Single Market’ pointed out that such a situation was already established at the outset of Brexit negotiations: it didn’t need to be first created by other strategic manoeuvring and that fact allows for a great simplification.  To be turned to advantage though, it would be necessary first to ‘flick the low inertia switch’ (since in most circumstances UK governance sits in a high inertia mode). The tragedy of the last three years is that that was never done.  

There are two immediate reasons why these points are , quite suddenly, highly salient:

  1. With arrival of the new Government the switch has been flicked (arguably because it became necessary for the survival of the Conservative Party in anything like its current form).
  2. Dominic Cummings is deeply familiar with the work of John Boyd.

 

What does the UK want?

The governance system of the UK has suffered Brexit paralysis for 30 months in the face of a parent-to-child question “What do you want?” It has been asked many times over in the capitals of Europe, without any apparent, great success in eliciting a clear response. It is time to end the statis by testing out the preferences of MPs.

With a little bit of help from basic social science the initial exercise could be simple and very quick.  The aim is limited — to discover more about preference orderings — not to invent a voting mechanism that will be determinative in relation to major decisions.  It is the classic aim of regulatory impact assessment: to inform decisions, and to do no more than that.

When an issue is binary (Remain/Leave), a preference can be revealed by asking the subject to choose between the two options. When there are multiple options, preferences are discovered by asking for a multiplicity of binary choices to be made. A more comprehensive preference ordering is then built up from these binary comparisons.

That’s hard to do if there are myriad options available. But suppose there are only four, broad-brush options that require immediate assessment: A, B, C and D. There are then only six binary rankings/choices required: A vs B, A vs C, A vs D, B vs C, B vs D and C vs D. That entails entering a cross in six out of 12, paired boxes.

Such a questionnaire could fit on a sheet of A4, with plenty of white space, and is a lot less complex than a Californian ballot paper. The full dataset for the UK House of Commons can be coded in a 650 (approx.) x 6 spreadsheet, most cells having 0 or 1 entries. That is a small-scale data exercise.

Some of the returns may, of course, violate the axioms of rational choice theory (e.g. by showing ‘cyclicity’ or ‘non-transitivity’), but most human decision-making does that anyway (don’t panic: it just means that the theory fails and that should disturb no-one other than those invested in it). The data will be what they will be.

The four broad-brush Brexit options I would suggest are: (A) Remain in the EU, (B) ‘Norway’ (Leave the EU, but remain in the EEA), (c) a Stand-alone WA (‘stand-alone’ because it is the only framework Agreement sought), and (D) No Framework Agreement (‘No Deal’, but allowing for the possibility of specific agreements).

The stand-alone qualification is important because, for example, ‘Norway’ can be combined with a WA that covers matters not encompassed or not adequately addressed by the EEA Agreement itself, the most obvious of which are trade in agri-foods, trade in fish, and customs arrangements. Aspects of one approach can potentially be used to support or complement another, broad-brush approach.

The individual polling is not, however, a stand-alone exercise. The intent would be to form a view of opinions in the House of Commons as a whole. Knowledge of this intent may tempt respondents to play games with their individual responses.

MP X may prefer A to B to C, but, if B is thought to be the closest ‘competitor’ to A, he/she may be tempted to rank C above B in the binary choice between those two (less preferred) options, in hope of increasing the prospects for A at the collective level. We are all well familiar with this type of game playing from observing the Brexit process so far.

One defence against this is to make the dataset publicly available so that constituents, spreadsheet nuts, researchers, journalists et al can interrogate first the data and then the individual MP. In a representative democracy, MPs owe us their judgments for sure (Burke), but they also owe us some level of explanation for those judgments.

The prize in all this is an improved first mapping of individual and collective preferences, deliverable very quickly. There is a vote in the Commons next Tuesday. If the WA is voted down, an exercise like this could potentially be completed by the end of the week. If Government and Parliament won’t do it, a polling organisation or think tank could.

Will it work and be helpful? We don’t know. It is definitional that the outcomes of discovery processes are unknown: they don’t come with guarantees. We are already in ‘uncharted territory’, but, trained as a geographer, Mrs May should know that it might be a Good Thing to start charting it.

Conservative philosophy, then and now.

The Xmas and New Year break is a good time to catch up on background reading that has sat around on a ‘to do’ list for longer than it perhaps should have done. I’m currently about half way through a re-acquaintance, after several decades, with Edmund Burke’s Reflections on the Revolution in France, motivated by a passing thought that the current Parliament has seemed to exhibit some distinctly Jacobin tendencies.  There are many striking passages in what can reasonably be described as Burke’s long, sustained rant against the political developments in Paris toward the end of the 18th century, but the following passage had particular resonance for someone with strong interests in public policy.

“The science of constructing a commonwealth, or renovating it, or reforming it, is, like every other experimental science, not to be taught à priori. Nor is it a short experience that can instruct us in that practical science: because the real effects of moral causes are not always immediate; but that which in the first instance is prejudicial may be excellent in its remoter operation; and its excellence may arise even from the ill effects it produces in the beginning. The reverse also happens: and very plausible schemes, with very pleasing commencements, have often shameful and lamentable conclusions. In states there are often some obscure and almost latent causes, things which appear at first view of little moment, on which a very great part of its prosperity or adversity may most essentially depend. The science of government being therefore so practical in itself, and intended for such practical purposes, a matter which requires experience, and even more experience than any person can gain in his whole life, however sagacious and observing he may be, it is with infinite caution that any man ought to venture upon pulling down an edifice, which has answered in any tolerable degree for ages the common purposes of society, or on building it up again, without having models and patterns of approved utility before his eyes.”

The contrast with the sentiments of the current government is striking.  The referendum result gave an immediate mandate for extensive institutional demolition:  over 70% of the EU acquis was to go, including not just legislation focused chiefly on political integration, but also in areas with high economic salience such as the EU customs union and the common agricultural, fisheries and commercial policies.  EU legal supremacy was to be ended, and in future Britons would be governed by laws and regulations made exclusively by their home governments.

An immediate question for the Conservative Government was whether there should be a more comprehensive ‘pulling down’ than the extensive institutional demolition entailed by  the referendum result itself. Burke’s ‘infinite’ caution was no doubt a rhetorical exaggeration, but ‘proceed with considerable caution’ might reasonably have been expected to have entered the minds of traditional conservatives.  In the event, at the very outset of the Brexit process, a decision was taken to seek to pull down, in its entirety and not just in part, an edifice that has served a shared purpose to a ‘tolerable degree’ for some time.  It is the structure of European trading rules, including, but going well beyond, the tariff rules to be found in less deep Free Trade Agreements.  This institutional structure has functioned to reduce intra-European tariff and non-tariff trade barriers, covering approaching 50% of the UK’s goods trade.  It is commonly referred to as the Single Market [1].

This decision appears to have been taken by only three people (May, Hill and Timothy), exercising no caution whatsoever.  There was no thought-through assessment prior to the decision, and no realistically attainable ‘patterns of approved utility’ capable of ‘building it up again’ were considered in any depth.   Wishful thinking appears to have been judged sufficient:  “We know how to do this” is reported to have been the sentiment of the moment [2].  If so, that was Jacobin hubris, not Burkean prudence.

There is an interesting contrast here with that most economically radical of twentieth century Conservative Prime Ministers, Margaret Thatcher. The process of liberalization, privatization and regulatory reform associated with her name proceeded over the full 11+ years of her tenure of Downing Street, on a step-by-step basis, starting with easier policy exercises at its beginning and moving on to more difficult areas (like electricity and water) at its end (and even then not touching the yet more problematic cases of railways and postal services).  That allowed for sequential experimentation and  learning along the way.  At each stage an extensively considered new institutional structure was developed ahead of the abandonment of the old. There was no early equivalent of “we know how to do this”.  There was certainly boldness and innovation, but sagacity and prudence had not gone AWOL.

Despite the best efforts of the new Jacobins, the institutional edifice of the EEA Single Market  has not yet been destroyed.  The EEA acquis was established by means of an international Treaty, the EEA Agreement, which the UK made a solemn promise to observe when it first signed the Agreement (in Porto on 2 May 1992) and then ratified “according to [its own] constitutional requirements”.  As the Attorney General recently advised Cabinet colleagues in the context of the Ireland / Northern Ireland Protocol to the Withdrawal Agreement (another international Treaty), under international law such commitments do not simply melt away.  Concrete actions are required to end them.

It may be that the Government is now hoping to evade its EEA Treaty obligations by means of the Agreement just struck with Iceland, Liechtenstein and Norway concerning arrangements designed to follow a future, currently hypothetical, UK withdrawal from the EEA. The draft Agreement was published surreptitiously on 20 December 2018, possibly with the intent that, at a future moment of choice, it will serve as an agreement that supersedes the EEA, rendering parliamentary consent to EEA withdrawal otiose.  However, the new Agreement must also be ratified (see its Article 71(1)) and, if Parliamentarians smell a rat, they can forestall any such subterfuge.  Parliament therefore has the power to ensure that UK membership of the EEA is not ‘pulled down’ before the means to build it (or something similarly functional) up again are very firmly before its eyes.  A Jacobin government versus a Burkean parliament?  That would be an interesting conjunction.

 

[1]  There are in fact two ‘Single Markets’:  the EU’s  Internal Market and the EEA’s Single Market, each defined by a distinct international Treaty.  The former has a wider policy scope, including the EU customs union and common commercial policy, agriculture, and fisheries, which are not covered by the EEA Agreement.  The two, market governance structures are also substantially different.  Internal Market rule-making includes majority voting procedures (consent to which Mrs Thatcher came later to regret), and a single supervisory system based on the European Commission and the CJEU. In contrast, the EEA rule-making and supervisory system is dualistic in nature, relying on consensual agreement and reserving a right of veto for each of the non-EU States.

[2]  See Stewart Wood (2017), https://medium.com/@stewartwood6887/theresa-mays-mistaken-precedent-for-a-brexit-based-on-cherry-picking-1e2e6a3b9985 and Tim Shipman (2017), Fall Out (page 5).

 

 

The logic of the Attorney General

This note focuses on a narrow front in the Brexit wars, the Attorney General’s (AG’s) advice on the Ireland/Northern Ireland Protocol to the Withdrawal Agreement and the implications of that advice for a different issue, the UK’s status as a party to the European Economic Area Agreement (EEAA) immediately following Brexit. Though narrow, the front is nevertheless one of enormous significance for Brexit policy. Mr Cox’s letter to the Prime Minister of 13 November 2018, headed “Legal effect of the Ireland/Northern Ireland Protocol”, should, when duly considered, be a game changer.

The question of interest

Brexit has created circumstances that were not anticipated at the time of the drafting of the EEAA. The emergence of such circumstances is a very familiar, recurring phenomenon in the operation of complex agreements of all kinds, including international agreements.

These agreements typically take the form of incomplete contracts, meaning that they do not attempt to specify, with any great precision, the performance requirements of parties in all contingencies (all sets of circumstances). Hence, they frequently contain provision for arbitration arrangements to resolve the significant ambiguities that can easily arise and to settle the disputes that those ambiguities can trigger.

For international agreements, where the arrangements established by a Treaty are inadequate for resolving an ambiguity/dispute, the function of settling matters is served by the processes of international law. Brexit is such a case and the question of interest is: what are the implications of withdrawing from the EU for the UK’s participation in the EEAA?

The AG’s reasoning on the ‘indefiniteness’ of the Protocol

Mr Cox opens his substantive remarks at paragraph 3 of his letter of 13 November 2018 by noting that the Protocol on which he was asked to advise is part of an international agreement (the Withdrawal Agreement) that is binding on the parties and that must be performed by them in good faith and in accordance with the ordinary meaning to be given to its terms in their context and in the light of the Treaty’s object and purpose.

The words here are taken straight from the interpretive principles of the Vienna Convention on the Law of Treaties (VCLT, Article 31(1)), signifying the relevance of international law to the AG’s task. That is an important point to note, because very many of the blogs and comments on the EEAA issue have entirely ignored the implications of international law. In contrast, it is where the AG starts.

The references to context and to object/purpose are critical because international agreements rarely give rise to disputes that are easily adjudicated by reference to very narrow snippets of text alone. Thus, when it comes to the critical question of whether or not the Protocol is of an indefinite nature, the AG proceeds on a ‘wider-look’ basis as follows.

In the relevant sections of the advice (paras 12-16) he makes reference to Article 50 TEU, to Article 5 (good faith) and Article 184 (best endeavours) of the Withdrawal Agreement, to Articles 1.3, 1.4 and 2.1 of the Protocol, and to the Protocol’s preamble, thus covering material from a range of textual contexts. He first notes that different readings of this material can lead to different conclusions concerning ‘indefiniteness’. Hence there are ambiguities to be resolved.

The AG resolves them by reference to the overarching object or purpose of the Protocol, as summarised in the preamble where it recalls “the commitment of the UK to protect North-South cooperation and the UK’s guarantee of avoiding a hard border, including any physical infrastructure or related checks or controls”. Thus, the reasoning goes, if it turns out to be the case that the parties have negotiated in good faith and used best endeavours to reach an agreement, but have nevertheless failed to reach an agreement, that does not give grounds for disapplication of the Protocol, notwithstanding that there exist snippets of text suggesting otherwise. In a nutshell, that is because the disapplication of the Protocol in those (no-agreement) circumstances would work against the achievement of the Protocol’s overarching object/purpose. Only if another agreement is reached that commensurately serves the Protocol’s overarching object/purpose could the Protocol ‘fall away’.

The VCLT’s words “in the light of the Treaty’s object and purpose” are clearly central here: they are the taken as the touchstone for resolving ambiguity.

The same reasoning applied to the EEAA

There has been a long-running debate since the referendum as to whether the UK will continue to be a party to the EEA Agreement following the UK’s withdrawal from the EU. The relevant question can be put as follows: will the UK’s EEAA’s obligations and rights continue ‘indefinitely’ until such time as a VCLT-compliant exit from the EEAA has been achieved, or will the obligations and rights end, ‘definitely’ and ‘automatically’, in consequence of Brexit?

This is not the time or place to rehash those arguments in detail, but a general feature of the interchanges can be noted. Those who conclude in favour of ‘indefiniteness’ – what I have referred to as “EEA continuity” – tend to emphasise the centrality of international law and of the object and purpose of a Treaty in resolving ambiguity, whereas those who argue for ‘automaticity’ tend to look at things through the lens of European Law and to rely on inferences that could possibly be drawn from narrow snippets of the EEAA’s main text (EEAA Articles 2(c), 126(1) and 128 are favourite sources of cited text).

In his approach to the Ireland/Northern Ireland Protocol, it will be obvious from the earlier remarks that Mr Cox has relied on the first of these two approaches, focusing on the primacy of international law (even for a Treaty so intimately linked to European Law as the Withdrawal Agreement) and on object or purpose as a touchstone for resolving the ambiguities that arise from different readings of snippets of text. His central conclusion on ‘indefiniteness’ was “… in international law the Protocol would endure indefinitely, until a superseding agreement took its place, in whole or in part …” [his emphases].

The relevance and centrality of international law are, I think, even clearer for the EEAA than for the Withdrawal Agreement. The EEAA is a multilateral Treaty that was originally drafted to accommodate seven, fully sovereign states that were not members of the EU and which declined to accept the judicial authority of the CJEU. In contrast the Withdrawal Agreement, if it is signed and ratified, will be a Treaty between the EU and a state that, at the time of its signing, was one of the EU’s own members and subject to the authority of the CJEU.

The EEAA issues also appear clearer when it comes to using the object and purpose of a Treaty to resolve ambiguities. The immediate questions here concern (a) the nature EEAA’s object and purpose and (b) the implications of alternative interpretations of the Treaty’s text for the achievement of that object or purpose.

The object/aim/purpose of the EEAA is admirably succinct and is of an economic nature. It is specified in Article 1(1):
“The aim of this Agreement of association is to promote a balanced strengthening of trade and economic relations between the Contracting Parties with equal conditions of competition, and the respect of the same rules, with a view to creating a homogeneous European Economic Area, hereafter referred to as the EEA.”

I have emphasised “between the Contracting Parties” because the UK is one of those parties, each and all committed to pursuit of the shared aim/object/purpose. Under international law, it achieved that status by signing and ratifying the Agreement. All the other parties have therefore made commitments to promote a balanced strengthening of trade and economic relations with the UK, just as the UK has made the same commitment to each of the other parties. It is a basic principle of international law that these commitments must be met (pacta sunt servanda).

Given the overarching aim set out at Article 1(1), if there are conflicting interpretations of parts of the text of the EEAA, resolution of the ambiguities can proceed by asking the question: how would adoption of each of the ‘candidate interpretations’ bear upon the capacity to achieve the specified, shared aim/object/purpose?

If the object or purpose is of economic nature, as it is in the case of the EEAA, then judges or arbitrators necessarily have to make economic assessments. Explicit statement of this fact can make even judges nervous (something I have directly experienced as a participant in judicial training exercises). But it is unavoidable: they do not get to pick and choose the factual matrix with which they are presented when their judgments are sought.

In the EEAA case though, there should be no reason for judges/arbitrators to doubt their own capacity to undertake the relevant assessments: the economic points are very simple. All that needs to be assessed in the event of a dispute about interpretation is which of the contested ‘automaticity’ or ‘indefiniteness’ interpretations better serves the overarching aim of Article 1(1), and that is something of a no-brainer. It is very difficult to see how the UK falling out of the EEAA could do anything but weaken, rather than strengthen, the trade and economic relations between say, the UK and Norway, given that the EEAA serves as an FTA between the two countries. Similarly, if WTO tariff schedules are taken as a relevant comparator, the ‘automaticity’ interpretation would lead to the sudden appearance of a 10% tariff on autos for all UK trade with the 27 remaining EU Member States. That again would serve to weaken trade between the Contracting Parties of the EEAA.

At a general level, it would I think be difficult to conclude that the aim of promoting trade and economic relations across an economic zone or area would not be significantly harmed by the removal of the zone’s second largest economy.

To avoid any misunderstanding, this is not an argument for the EEA as a policy choice. Some would no doubt prefer an immediate exit from the EEA in the UK’s own interests. However, the UK’s interests are not the relevant criterion in answering the question posed: the criterion is rather the impact on the Agreement’s shared purpose, its Article 1(1) aim. Moreover, those who favour EEA-exit on policy grounds should properly have sought to trigger the EEAA’s Article 127 (the exit provision), which would have led to UK withdrawal in a way that would have been compliant with the Agreement itself and hence with international law. The UK gave a solemn commitment to do things that way when it signed and ratified the Agreement, but the current Government has, de facto, not honoured the commitment, most likely because of a perception that nothing close to a majority could be mustered, whether in Parliament or among the public, for that course of action. Pacta non sunt servanda now.

Following the AG, therefore, it might be said, perhaps with greater force than for the Ireland/Northern Ireland Protocol, that in international law the EEAA will endure indefinitely, until such time as a withdrawal process that is not in breach of the Agreement is completed.

On that basis, in the absence of a consensus among the Contracting Parties, including the UK itself, that the UK should withdraw on 29 March 2019, a ‘deep and special’ trade and economic cooperation agreement with the EU, its Member States, Iceland, Liechtenstein and Norway will remain in place on 30 March 2019.

Comments

In the post referendum period the Government has been faced with two questions on which legal advice has been sought, each of great importance for Brexit policy and each engaged with the same basic issue, whether or not an international Treaty is ‘temporally indefinite’. In one case (the Ireland/Northern Ireland Protocol) the Government, has received advice from the Attorney General – now in the public domain and with its reasoning fully laid out for all to see and examine – that the answer is in the affirmative. In the other case, concerning the EEA Agreement (where prima facie the AG’s reasoning leads more quickly and more definitely to the same answer) the Government has proceeded on a presumption that the answer is in the negative.

The much earlier advice on the EEAA, which the Government has claimed justifies its view that that the UK’s Treaty rights and obligations will be extinguished, definitely and automatically, on Brexit Day, has never been disclosed. Its authors have not been identified. The basis of the conclusion (which could have been provided without disclosing the advice itself) has never seen daylight. We can’t even be sure that the advice actually exists in any written down or formally presented way. There is no indication in political speeches or articles that the object or purpose of the Agreement has been considered to be a relevant factor in reaching a conclusion on “EEA Continuity” (i.e. no indication that VCLT interpretive principles have been followed). Nor is there any indication that the Cabinet has been able to see and discuss the advice. It all seems to be locked away in a secret garden.

In these circumstances, there would be great merit in asking Mr Cox quickly to provide the PM and the Cabinet with a review of the integrity and robustness of any earlier advice on ‘automaticity’. If that were done, and if he were to reach the same conclusion as he did in relation to the Ireland/Northern Ireland Protocol, Brexit prospects and options ahead would come to look very different by the opening of the new year. Moreover, if that did indeed turn out to be the case, the Prime Minister, Cabinet and Parliament would then have the advice of Lord David Owen to turn to for one, immediately relevant and manifestly feasible answer to the question: What is to be Done?

31 letters making 8 points

In the Sunday Times today, in the form of a letter to Parliamentarians, David Owen summarises a suggestion that we have both advocated since 2016. It is an approach that has been consistently blocked by Mrs May’s red-line against participation in the European Economic Area (EEA).

If the Withdrawal Bill is defeated in Parliament on 11 December, it would pass beyond the bounds of sanity to maintain the red-line. In such an uncertain moment it would be certain folly to refuse seriously to contemplate and consider an option that could be of significant value in the new circumstances. And by serious consideration I mean an assessment stripped of myths and erroneous ‘assumed facts’ when engaging with issues such as rule-taking, budget contributions, and free movement of workers provisions in the EEA. If the facts change substantially, only the most inflexible of minds would fail to contemplate a change of opinion.

Lord Owen poses the issue in a very concrete context. The Withdrawal Bill has been defeated and we are faced with Lenin’s question: What is to be Done? The answer he gives is very specific: ‘this’ is what should be done.

Almost identical letters should be sent to each of the other 31 contracting parties of the EEA Agreement (EEAA) making 8 points, as follows:

• The UK reaffirms its full commitment to the Article 1(1) aim/purpose of the EEA Agreement and intends to continue its membership of the EEA from 29 March 2019.
• The UK assures all other parties that it will continue, post Brexit, to perform its obligations under the Agreement, recognising that these obligations will expand in scope as EEA competences currently lying with the EU are transferred to the UK (an automatic consequence of the transfer of sovereignty that Brexit entails).
• The UK reaffirms its commitment to the existing territorial scope of the application of the EEAA to the territories for which it has responsibility.
• The UK expects all other parties to the Agreement to continue to meet their own obligations to the UK under the Treaty, again recognising that, for the EU, these will be diminished by the transfer of competences that will occur in consequence of Brexit.
• The UK expects its obligations to be equivalent to those of Iceland, Liechtenstein and Norway.
• The UK notes that a switch of EEA governance pillar status occurred, with relative ease, when Austria, Finland and Sweden ceased to be ‘EFTA States’ and became members of the EU in 1995. Though it would have been arguable on a narrow reading of EEAA Art 128(1) that those countries should have re-applied to join the EEAA, that is not what happened.
• In the event of any serious dispute the UK will seek arbitration under international law, for example via the Permanent Court of Arbitration.
• The UK formally gives notice that it reserves its EEAA Treaty rights under international law, recognising that, after 29 March 2019, it will be international law that will be relevant for the settling of any disputes.

Taken together, these points amount to an exhortation to follow international law in relation to the issue of the UK’s immediate post-Brexit EEA status. No action has to date been taken by any party to change the contracting party status of the UK: the UK has not given Article 127 notice to withdraw from the EEAA, no other party has taken steps to remove the UK from the Agreement. There would be modalities to settle as to the operation of the Agreement in the new circumstances, but no issue of membership to settle. The letters would resolve any uncertainties surrounding the UK’s intent,

The proposal merits some additional commentary. First, keeping minds focused on the proposal (and not letting them wander immediately off on to other issues), there is no question of feasibility. The government can write 31 letters making 8 points, if it so chooses. It can’t of course control the responses, but it has 100% control of the act itself. That may look to be a trivial point, but I suspect the sending of the letters would itself feel liberating. The people yearn for a government capable of taking initiatives and it would be liberating in the very real sense of releasing policy thinking from the choking grip of an irrational red-line.

Second, the act itself has near zero cost. It might be argued that it would eat up valuable time, but, if the alternative is further delay and dithering with no other Parliamentary consensus is in sight, it could also speed things up. And there is good reason to think that an EU first response would not be long in coming.

The EU negotiators have tracked the Article 127 debate in the UK since the Autumn of 2016; they have developed temporary (ultimately unsustainable) holding positions on the issue that can and have been repeated by officials and friendly lawyers in those debates, and have been played as a straight bat when questioned by inquisitive journalists; they have considered what to do on 29 March 2018, the last day on which Article 127 notice could have taken the UK out of the EEA on Brexit Day. They will have contemplated the situation that has now arisen and have likely formed views on how to respond.

As to what the response will be, we simply do not know, although over-confident assertions will no doubt abound, as they always do (it is amazing how many people think they have possession of a reliable crystal ball). There is a range of possibilities, at least some of which would be highly favourable to both parties, and that is enough to make the exercise valuable. At a minimum we will discover something new, getting more insight of how things would stand in the absence of the limiting red-line.

The EU could say something along the lines of “Our position remains fixed, see you in Court”. Then again it may not. It might be the case, for example, that Michel Barnier spoke truly when he offered the EEA as an option in the past and when he said that, if the UK’s red-lines were changed, that would draw a positive response from the EU (and I think he did speak truly, although the lateness of the hour would provide some ground for resiling from that position now). Or that the EU will behave as it usually has in the past by being willing to keep talking until nearly the last moment in search of a better outcome. Or that it will be very wary of being seen to be operating beyond the limits of international law in its response: the parties to the EEAA having made promises/ commitments to each other in signing an Agreement to work together in pursuit of the Treaty’s Article 1(1) aim: and, as the Vienna Convention on the Law of Treaties states firmly, Pacta Sunt Servanda.

For the non-ideological empiricists who make up the bulk of the UK population, I think that the best way to look at David Owen’s proposal is to think of it as an experiment. That may sound scary, but it’s not. The situation calls for adjustments and adaptations and the only realistic way to find out what will and won’t work is to experiment, to try something new and different. The great bulk of human knowledge has accumulated in this way. Every significant advance, including in economic policy, has been made without foreknowledge of the full consequences of the step to be taken. (To which it might be added that where innovations are perceived as having potentially substantial effects, they are generally opposed by a much more numerous band of naysayers.)

What is more certain is that: we will at least learn something new; the response will not be long in coming; and there are potentially valuable things to be discovered. Defeat of the Withdrawal Bill therefore presents the UK Government and Parliament with an opportunity and, as Sun Tzu said, and as all followers of the former ECJ Judge Franklin Dehousse will know, “Opportunities multiply as they are seized”, to which I will add “and diminish as they are not seized”.

Finally, I think the saddest type of domestic response to the proposal would be – and I anticipate there will be responses of this kind – ‘it just won’t work, so its not worth trying’. That is defeatism pure and simple: it is way out of line with what is advised by a cost-benefit analysis and, I suspect, with public attitudes too.

An explanatory note to accompany the letter is to be found on the website http://www.lorddavidowen.co,uk 

Mrs May’s assault on freedom: an intellectual error?

The Prime Minister’s letter to the nation of 24/11/18 reveals again the over-riding priority she attaches to reducing immigration, which might reasonably be described as an obsession that has developed since she first became Home Secretary in 2010. For some this will be viewed as a moral failing, but I want to argue here that it is much more of an intellectual failing.

The issue is the fallacy of composition. For those who don’t know it, it refers the false belief that something that is true for a part of a whole is necessarily true of the whole itself. E.g. if I stand up at a football match I see better, but it can’t from that be inferred that if everyone stands up they will all see better.

Just about all students of macro-economics become immunised against it when they learn that, if they decide to save a higher proportion of their income they can expect that their savings will increase, but if everyone makes that same decision at the same time, aggregate savings for the economy as a whole may very well fall.

The key point to recognise is that economic freedom, of which free movement of persons is a dimension, is an attribute of individual parts of a whole. Thus, the provisions of the EU and EEA Treaties afford rights to individuals to move around freely within given sets of territories, unhindered by many (though not all) of the constraints that might otherwise be placed upon them by public authorities, e.g. by the Home Office in the UK. This is what freedom of movement means in these Treaties: they limit the degree of control over an individual that a national government might otherwise seek to exert.

It would, though, be to fall under the spell of the fallacy of composition, if it were to be inferred that, because the control of a government over individual migration decisions is limited, that its control over aggregate migration is similarly limited. That is a logical error, and policy practice shows that it just ain’t necessarily so.

Consider, for example, the EU Emissions Trading Scheme (EU ETS) for controlling the aggregate emissions of greenhouse gases, an arrangement that was heavily influenced by British, liberal economic thinking of the time. The scheme does not constrain the freedom of an individual emitter of CHGs to increase or reduce its emissions, but it does constrain the aggregate emissions in the jurisdiction (the EU) as a whole.

How then does this reconciliation between the part and the whole occur? The answer is simple: by recourse to the price mechanism, the most familiar method of balancing supply and demand in a commercial society like ours. EU ETS makes available a given number of ‘carbon certificates’ that each entitle an emitter to discharge a defined (carbon equivalent) level of CHGs into the atmosphere. That first exercise determines a cap on emissions for the EU as a whole. The certificates are, however, tradeable, meaning that their holders are free to buy and sell certificates among themselves. If the owners of a particular production facility covered by the scheme want to increase or decrease their emissions in a given month, year or period of years, they are not constrained by public authority from doing just that.

EU ETS is a relatively recent regulatory innovation (2003), but the underlying practice has been obvious for centuries. Land is in relatively fixed supply from year to year (it might be said that the whole is highly constrained by nature). However, markets in land mean that individuals can vary their own, individual holdings from time to time via quotidian buying and selling transactions.

And so it could be for migration policy. A government with the sovereignty that a post-Brexit UK will possess could impose a cap on the aggregate number of residence permits on issue, i.e. on the whole, but allow trading of those permits, i.e. allow individuals the freedom to buy or sell. This tradability right would render the overall cap consistent with individual freedom of movement.

The UK cannot do this as a member of the EU, because it doesn’t yet possess the necessary sovereignty, although the EU as a whole does (which it might one-day use, for example, because this type of arrangement could be expected to significantly reduce the incentives for illegal people-smuggling and simultaneously render the policing of illegality a smaller-scale challenge). As a member of the EEA with the same status as Norway, however, it could, which is why I looked at this approach in a little more detail in an earlier blog, “A cap and trade system for residency”. https://gypoliticaleconomy.blog/2018/05/05/the-journey-begins/

The bottom line is that there is no fundamental trade off between access to the EEA’s Single Market and a capacity to control aggregate migration flows.  Rather, it is a matter of ensuring that the chosen means of control are EEAA-compliant. The fact that the Home Office’s currently preferred administrative methods, entailing gross interference in individual decisions, would be non-compliant means only that they should be abandoned in favour of market-based approaches that do not impede individual economic freedom.  The risk of a protracted civil division over this issue is, in my view, largely attributable to a lack of (a) imagination and (b) relevant expertise in our own, not-so-dear, Home Office.

Article 129(1) of the draft Withdrawal Agreement: a modest suggestion

When first posted this blog referred to Article 124(1) of the draft Withdrawal Agreement of March 2018.  It has been adjusted to reflect the Article numbering in the November 2018 version. End comments have also been added in the light of the current (19/11/18) situation.

In current circumstances, the EU Brexit negotiators must necessarily consider the likely effects of their own conduct on the state of affairs in British parliamentary politics. This is not a question of interfering in British politics, it is simply a recognition of realities. Any new offer made by the EU affects the political balance in Britain, which in turn affects the prospects for a satisfactory outcome for the EU itself. The balance is simply part of a causal chain linking EU actions to EU consequences.

With this in mind, let me run a suggestion up the flagpole to see if it catches any wind. It is directed chiefly at EU negotiators, since things in the NW archipelago seem a bit stuck in a groove at the moment. It could possibly transform the state of play in Westminster in a way that would open up a path to a Brexit outcome that would be judged satisfactory on both sides. By the ‘British side’ here is meant majority public opinion, not the opinions to be found in the ideological factions of a fractured politics. The suggestion concerns Article 129(1) of the draft Withdrawal Bill.

Article 129(1), which appears under the heading Specific arrangements relating to the Union’s external action, reads as follows:

Without prejudice to Article 127(2), during the transition period, the United Kingdom shall be bound by the obligations stemming from the international agreements concluded by the Union, by Member States acting on its behalf, or by the Union and its Member States acting jointly, as referred to in point (a)(iv) of Article 2.*  (The end asterisk points to a footnote.)

These international agreements include the much discussed Free Trade Agreements with third countries, egs Canada and Korea. Amongst them is the sui generis European Economic Area Agreement.

Article 129(1)’s confirmation of the EU’s support for the continued applicability of the EEA Agreement without recourse to any need for international dispute resolution has been of comfort to many in the UK, but there is one snag. The footnote to Article 129(1) says that:

The Union will notify the other parties to these agreements that during the transition period, the United Kingdom is to be treated as a Member State for the purposes of these agreements.

In relation to the EEA Agreement, it is the footnote that gives rise to the ‘vassal’ or ‘colonial’ status that has created and is creating significant opposition to the proposed Withdrawal Agreement. It obviously fans the flames of the nationalistic sentiments that can cause ruptures in the fabric of international cooperation, but that is not its only effect. It entails the following of market rules without any ability to shape or influence those rules. Its repudiation would therefore likely be supported by at least some Parliamentarians with strongly democratic, but not particularly nationalistic, sentiments.

My suggestion is therefore this. Provide for the sui generis EEA Agreement to be an exception to the general rule established in the footnote (that the UK is to be treated as an EU Member State). Specifically, introduce an option that the UK can instead choose to be treated as an EFTA State, subject of course to the consent of Iceland, Liechtenstein and Norway.

In respect of trading arrangements at least, that would make ‘vassal’ status optional and, when in a tight spot, additional options are nearly always good to have.  Although the option would be exercisable by the UK, the amendment would have benefits for the EU too.  The European Commission has a big agenda and is heavily stretched in terms of technical resources.  Particularly if the transition period is to be extended, the retention of UK experts in the ‘engine rooms’ of regulation could be of significant value, just as Norwegian officials have added significant value in a number of important, regulatory areas over the past years.