This EU Won't Work

Michel Barnier, having been told not to bother coming to London because there was nothing to discuss if the EU was refusing to compromise now says both sides must compromise. A compromise deal is looking fairly likely but will the UK be compromised by it?

Deal or no deal, the UK has already been deeply compromised after May’s amazing mess so giving more ground will have long-term consequences we’re likely to regret. At least the EU has agreed to discuss all the issues rather than simply the big three where it insists more ground must be conceded by Britain: fishing, state aid and governance. Here are some examples of what’s at stake.

Fishy Business

A bluefin tuna shoal was recently spotted in Cornish waters but local fishermen cannot catch these extremely profitable fish (they can be worth thousands of pounds each). That privilege is reserved for Spain, France and six other EU fleets. It didn’t matter much when tuna were virtually absent from our seas but these are full of foreign fisherman hunting them now.

This is the sort of mad compromise Heath accepted in his desperation to get a deal. The French ensured a Common Fisheries Policy was rapidly agreed by the EU6 before allowing the UK to join (De Gaulle had vetoed UK membership twice already). Britain previously had the largest fishing fleet in Europe.

The quotas for different species were based on a complex and unfair formula but if warmer seas are the reason tuna have returned then circumstances have changed and so must the policy. Overfishing of tuna globally has threatened this species and some people are suggesting they be offered asylum around British shores. Alternatively, once given a chance to re-establish themselves they could become a valuable resource again – bluefin were once common in the North Sea (and known locally as tunny) until their food source of herring and mackerel became depleted by commercial fishing.

Important Business

Next up is state aid, or the ‘level playing field’ as it is absurdly called by our adversaries (let’s be honest, they are not what Boris calls “our European friends“). Cornwall was once world famous for mineral mining but is now one of our poorest counties. Recently, commercial quantities of lithium have been found which a couple of companies (British Volt and Cornish Lithium) are seeking to exploit, but what is also needed to maximise the county’s opportunities is a gigafactory for battery products supporting electric vehicle (EV) and other manufacturing industries. Lithium-ion technology was invented in Britain.

The EU has a rule for bypassing its state-aid rules, provided investment comes from more than one member country – this is the Important Project of Common European Interest (IPCEI) scheme. Northvolt in Sweden has been able to take advantage of this for its gigafactory at Skelleftea because of its importance to the EU’s green agenda. The Swedish and German governments plus the European Investment Bank have joined in support with the private investors (which include Volkswagen). Obviously the UK no longer qualifies under IPCEI so must be permitted to level up if it wishes to compete; under the normal rules, which the EU wishes to continue, UK Government support would be minimal in comparison.

Governing Business

The third big issue, governance, concerns how the agreement is to be supervised and how any disputes will be settled. The EU has demanded that the future relationship will be governed by the terms of the Withdrawal Agreement (WA) coupled with the (non-binding) Political Declaration (PD). Consider this from the PD:

…future arrangements…should reflect the commitments the United Kingdom is willing to make that respect the integrity of the Union’s legal order, such as with regard to alignment of rules and the mechanisms for disputes and enforcement including the role of the Court of Justice of the European Union(CJEU) in the interpretation of Union law.

This could be described by the analogy of giving ones’ house keys to greedy neighbours and saying, “come in whenever you like and help yourself to whatever you want.” Because of the Northern Ireland Protocol any trade between the province and the UK mainland can be affected by this. But since companies will not want to follow different standards for both parts of our own union the reach of the EU’s court would be deep indeed.

Some commentators have suggested that disputes should instead be decided by EFTA’s court, perhaps with a UK judge appointed in addition to those of Iceland, Norway and Liechtenstein. However the UK Government insists it must be sovereign, it is not a member of EFTA and this is not how other partners in trade agreements have been treated by the EU. How could we trust the EU to make a fair (i.e. disinterested) decision on state investment in a UK gigafactory after its behaviour since the Referendum, especially since the CJEU is mandated under its own treaties to favour the EU’s interests? [3]

What If There Is No Compromise?

The UK has finally signed its first trade deal since it gave up the right, half a century ago, to negotiate for itself. The deal agreed with Japan should soon be followed by others, including with Canada, Australia, New Zealand and (hopefully) the USA. Another target in sight is a deal with the eleven CPTPP countries which include the first three above plus other countries in Asia and South America [2]. Donald Trump withdrew the USA from the Trans-Pacific Partnership (TTP), which then continued minus the Yanks but with some extra letters – but if Biden replaces him next month that is likely to be reversed.

“Big deal”, scoff the anti-Brexit brigade, “CPTPP countries account for 8% of UK exports, less than a fifth of what we sell to the EU.” However, recently the EU28 represented 16% of world GDP compared with 13% for the CPTPP11, therefore the EU27 GDP would be roughly equal to CPTPP + UK. Whilst the EU has grown (slowly) in absolute terms during the past forty years it has diminished (almost halved) relative to total world GDP. The CPTPP members collectively have grown proportionately in that period.

If the UK joins to form the CPTPP12 its trade within the group will grow. We cannot forecast when (or if) UK exports will recover and exceed what they would have been had it remained within the lacklustre Union on its doorstep. We may never know since counterfactual evidence cannot exist. What we do know is that there are great prospects for an independent, unshackled country.

The graphs below show how the EU’s combined economy has shrunk relative to the world total; since new members joined in the period those economies have been added to give the pale-blue line. The graph on the left is in US dollars but this varies with exchange rates so a more realistic measure is generally used based on purchasing power within each economy.

[1] https://www.telegraph.co.uk/comment/11305123/No-end-to-the-EUs-crazy-fishing-policy.html

[2] The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) includes: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

[3] Law