Legatum latest


The Legatum Institute have released a new report. As readers of this blog will know, we take a dim view of their output. 


In this latest report, they again attack ‘soft brexit’ alternatives: 

“Interim arrangements should avoid EEA or EFTA membership. 

One of the major arguments made by third countries is that they cannot seriously engage in negotiations unless they know what the UK will ‘be’ on 30th March 2019. The government’s settled
policy has so far been clear. The UK will be out of the Single Market and Customs Union, negotiating an FTA with the EU (with interim measures to minimise the disruptions caused by leaving the
EU Customs Union and Single Market).

EU law will have been carried into domestic law, so the regulatory baseline at the exit date will also be broadly known. This is a level of certainty that most countries do not have as they negotiate trade deals, and so they cannot use uncertainty about what the UK will be in two years as a reason not to start a serious negotiation. This also applies to the processes the UK is currently engaged in at the WTO to rectify our schedules.
However, any uncertainty in connection with membership of a customs union (in which the UK would not have control of its tariff schedules), or the Single Market, EEA-, or EFTA-type arrangements
(which would limit the UK’s regulatory authority) will not be tolerable for countries contemplating negotiations with the UK.

We have discussed in various reports why remaining in a customs union with the EU, or in the EEA, is not consistent with an independent trade policy, and therefore prevents the UK capturing
the opportunities of Brexit. Even on a temporary basis, remaining in either of these arrangements…would effectively send a signal to other countries that the UK is not available for bilateral or multilateral trade agreements or unilateral actions.

While countries can justify a two-year wait for preliminary negotiating exercises before concluding an FTA, signalling a lack of serious intent to begin negotiating in earnest risks changing
the calculus dramatically.

The EEA Agreement (which EFTA members signed with the EU and its member states in order to be members of the European Economic Area) essentially means membership of the Single Market and commitment to the four freedoms—free movement of goods, services, capital and workers. The EEA Agreement has been proposed as a transition stage for the UK after exit, but while joining the EEA Agreement could minimise disruption in the context of the UK’s relationship with the EU, it would profoundly curtail the freedom that would be required in order to be a credible partner in trade negotiations with other countries.” 

This report, like Legatum’s previous efforts, heavily attacks the EFTA/EEA ‘Norway’ option, but this time (perhaps in response to articles or twitter threads of ours) they have made some grudging concessions:

“Of course, the EFTA states are not part of the Customs Union or subject to the common commercial policy and enter into FTAs with other countries either in their own right or as a bloc. However, once again, the FTAs are very limited in scope and focus mainly on goods and tariffs.

With respect to non-tariff barriers and services, they generally do not go beyond affirming the parties’ existing WTO commitments and some hortatory language on co-operation.” 

In essence then, Legatum are merely rephrasing what they have repeated several times in the past.

They believe that for us to become a successful ‘Global Britain’ after Brexit we need to be outside the EU’s Custom’s Union, Common External Tariff or Common commercial policy. On those points, we agree. 

Where we disagree with them is that we don’t believe that the UK should shun the EEA (European Economic Area) or European Free Trade Association (EFTA). 

These structures and agreements would allow us to maintain largely frictionless trade with our largest trading partner – the EU27 while still allowing us to sign Free Trade Agreements around the world. 

Legatum seems to think that by jettisoning all regulatory ties to the EU and EFTA we can ‘put everything on the table’ during trade talks to sign some super-duper trade deal with say – the USA. This approach is effectively putting all our eggs in one basket and hoping for the best.

The USA will demand a lot in return for anything more than a basic FTA. Specifically, they will probably want the UK to harmonise with US regulatory standards. 

The closer that we move towards the USA in terms of regulations, the further we will move away from European regulatory systems. 

Given President Trump’s capricious nature and protectionist “America First” approach to trade, it would be utter foolishness to bet everything on a UK-USA Megadeal. 

Instead we must remain in the EEA to deliver a smooth Brexit, but leave the Customs Union to allow the UK to sign Trade Agreements across the world. In short – gain sovereignty but retain the benefits of the Single Market. 

As the respected German business journalist Wolfgang Munchau stated in a recent Financial Times article:

“From the EU’s point of view, the single market is binary and non-divisible. You are either in the whole of it or in none of it. There is no such thing as the Swiss option unless you are Switzerland.

I always cringe when I hear UK politicians talk about access to the single market. There is no such thing.

You are either a member or not. There is no sane alternative to joining Norway, Iceland and Liechtenstein in the EEA.”

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