John Bruton

Opinions & Ideas

Category: EU (Page 1 of 2)

WHY IS THERE AN IRISH BACKSTOP?

It puzzles many people in Britain that something known as an “Irish backstop” should be at the heart of an increasingly bitter dispute. The dispute is about the Deal the UK Government has made with the EU on the terms for the UK leaving the EU.

Most people understand that, when the UK leaves the EU, the only land boundary between the UK and the EU will be the 300 mile long border in Ireland.

Some do understand that if the UK leaves the EU there will have to be border controls.

After all, leaving the EU was supposed to be about taking back “control”, and, given that countries can only exercise control in their own territory, there is a logical necessity to have controls at the border of a country’s territory,  at its ports and on its land boundary.

This is not something made up by the EU to annoy Brits, but is a logical consequence of Brexit, which is, as we all know, something Britons have chosen for themselves, and not something imposed on them by the EU.

The proposed backstop in Mrs May’s deal with the EU  involves the whole of the UK staying in a close customs arrangement with the EU.

The original idea was that the backstop would be confined to Northern Ireland, but the UK government itself preferred a backstop arrangement that would cover the whole UK, so as to minimize the controls that would otherwise have to be imposed between Britain and Northern Ireland.

The object of the entire exercise is to avoid having to have controls at the 300 crossing points between Northern Ireland and the Republic of Ireland.

Some in Britain think that the UK should be free to leave the EU, and that the UK and Irish governments should then just decide, between themselves, that they were simply not going to have controls on the Irish border.

That would not work because Ireland would still be in the EU, and would be breaking EU rules if it failed to control its portion of the EU land border.

Apart from being illegal, it would be impractical.

The UK, once outside the EU, would immediately go off and try to make trade deals with non EU countries. These would inevitably involve agreeing to different standards, and different tariffs, on goods coming from these non EU countries to the ones that the EU (including Ireland) would be applying to these countries.

So, if there were no controls on the Irish border, goods from these non EU with which the UK had made its own trade deals could enter the EU via Northern Ireland, without complying with EU standards or paying EU tariffs.

That would destroy the EU Single Market, which is based on common rules and tariffs, made, enforced and interpreted in the same way for all 27 EU countries (including Ireland).

TRADE DISCRIMINATION BREAKS WTO RULES

Outside of the EU, under WTO rules, the UK would also have to impose tariffs on its side of the Irish border, unless it wanted to collect NO TARIFFS AT ALL on goods coming into the UK from any country in the world!

This is because of a WTO rule which, says that, in the absence of a broad trade agreement, a country cannot discriminate between WTO member countries in the rate of tariffs it charges on goods coming from those countries (the most favoured nation rule).

So, in the absence of a trade deal with the EU, the UK must charge the same tariffs on Irish goods as it would  charge on goods coming from any WTO members, with whom it has no trade deal, which, on the day it leaves the EU without a deal, would be every WTO country!

If it attempted to discriminate unilaterally, the UK would be bound to be taken to the WTO court by some or all of the WTO countries who would not be getting the same concessions.

The UK is a trading nation. As such, it benefits from a rules based world trading system. So it would not be in the UK’s interest to start breaking WTO rules on the day it left the EU, just to solve a problem that is of its own making.

SAVING LIVES BY GIVING RESPECT TO THE TWO ALLEGIANCES IN IRELAND

The other big reason for having an “Irish” backstop”, and for avoiding a hard border, is about human beings, rather than just about commerce.

For the past four centuries two communities, with different allegiances have lived together, geographically intermingled, in the Irish province of Ulster.

One community feels a sense of allegiance to Britain, its monarch, its historic narrative and its flag. The other feels an allegiance to Ireland and identifies itself with different historic narrative and different symbols. The two communities have different religious allegiances too but the disagreements between them are not primarily about religious matters, they are all about national identity.

For centuries, the contest between these two identities was a zero sum game.  Either the British identity had to win, or the Irish identity had to win. That zero sum approach led to wars, threats of wars, or uprisings in 1641-51, 1689-1691, 1798, 1867, 1911, 1916, 1919-23, 1939, 1956-7, and 1969-1998. These conflicts caused many casualties in Ireland, and in Britain too.

British and Irish political leaders have for the last 40 years been trying to find a different way forward. Rather than a zero sum game, where if one identity won, the other had to lose, these leaders sought to create conditions in which both identities could coexist comfortably together within Northern Ireland, without either of them winning or losing.

The aim was to ensure that neither would feel cut off from their focus of their emotional allegiance. The nationalists would not feel cut off from Dublin, and Unionists would not feel cut off from London or the “mainland” as they would call it.

The Belfast Agreement of 1998 achieved this. Crafted between Ireland and the UK, when both were members of the barrier free EU, it created structures to create a comfort zone for both communities.  This was done through establishing three interlocking structures of cooperation, incorporated in an over arching international Treaty, namely

  1. power sharing within Northern Ireland,  
  2. cooperation between North and South and
  3. cooperation between Dublin and London.

On the strength of this Agreement, Ireland changed its constitution to remove a  territorial claim it had on Northern Ireland.

Now, 20 years later, the UK’s decision to leave the EU puts these structures at risk, because, for the reasons I explained earlier, Brexit requires barriers to go up between the UK and Ireland, where previously there was free exchange.

This is why, at a meeting in London, long before the Referendum, I described Brexit as an” unfriendly act”  by the UK vis a vis my country.

The backstop is simply an effort to mitigate the damage. It is a second best option…… and a bad second best at that.

The only option that will not damage the structure of peace, we have so painstakingly built between Ireland and Britain, and within the island of Ireland, would be for the UK to decide to stay in the EU after all.

HIGH NOON IN BUENOS AIRES

The G20 meeting in Argentina, which took place last weekend,  simply postponed a confrontation between the US and China which could prove to be as momentous for Ireland as the Brexit vote in the House of Commons on 12 December.

Will a deal be possible in 90 days time?

The omens are mixed. Some US officials say China is offering nothing concrete to bridge the gap between the countries, just promises. President Trump is particularly sensitive about imports in the wake of thousands of lay offs by General Motors last week, which he blames on import competition.

President Trump has already imposed a 10% tariff on a wide range of Chinese goods in an effort to rebalance trade between the US and China. He has said he will increase the tariff rate from 10% to 25% on 1st January, if he does not get satisfaction from the Chinese.

He has threatened further measures to follow.

His concern is about the alleged theft on US intellectual property by China, Chinese subsidization of exports through state supported companies, and the supposed under valuation of the Chinese currency to boost Chinese exports.

A full fledged trade war could start if matters are not sorted out in the next 90 days.

One might think that a dispute like this might be referred to an arbitrator, who could adjudicate on the facts and the arguments. The WTO dispute panels are there to do this. But the US is refusing to appoint judges to sit on these panels, and President Trump has even threatened to withdraw from the WTO altogether.

A Trade War between the US and China would be very bad news for Ireland.

More than any other EU country, Ireland is dependent on the US as a destination for our exports. If the trade dispute with China hits US growth, the effect of that would be felt in Ireland more than in any other EU country.

As an export oriented country, Ireland has also invested heavily in building an export trade to China. We rely on a growing Chinese middle class to consume our meat and dairy products.

We also depend disproportionately on multinational companies, who use global supply chains, which would be disrupted drastically by a trade war between the world’s two biggest economies.

President Trump feels that China has gained unduly and unfairly from its membership of the World Trade Organisation (WTO) since 2001. Since then, while still being a state directed economy, China, through its membership of the WTO, has been able to get easy access to the markets of the world under the WTO’s Most Favoured Nation principle (MFN).

MFN requires a WTO member state not to discriminate between countries, and to charge the same tariffs of goods from all WTO members, including China, unless it has a comprehensive trade agreement with that other country (in which case it is allowed to discriminate in favour of that country).  

President Trump’s deeper worry is that China is using the profits it is making from its export industries to build its military and naval strength in the Western Pacific, where the US also has bases and alliances.

The US sees its bases in Korea, Japan, Thailand and the Philippines as defensive. After all, the US has had a military presence in the western Pacific, in the Philippines, since its war with Spain in 1898. But to China, these US bases, ringed across the sea lanes China uses to survive, are a threat.

To break out of its encirclement, China has increased its own military spending substantially. But it is still spending less than a third of the US defence budget.

So this is not a simple trade dispute that can be settled easily.  

China will continue to want to break out of ring of US bases on its eastern flank. Indeed its much publicised “One Belt One Road” initiative, to develop transport links from western China all the way to Europe, could be seen as an attempt to break free of its dependence on the Pacific sea routes, where it confronts the US and which the US could block in the event of confrontation between the two countries. Japan faced a similar situation in 1941.

The growing trade dispute is already having an effect. China’s economy is showing some signs of stress. New car sales there have declined. Corporate borrowing is high and could be hit by a rise in interest rates, which might be forced on China if it needed to revalue its currency to meet one of President Trump’s complaints. The biggest increase in global debt in recent years has been in China. It is an important element in the global banking system. A slowdown in China would affect the rest of the world.

China acknowledges it has a surplus in goods exports to the US, but believes this is compensated by services exports by the US to China, and by the privilege to US enjoys because its currency, the dollar, is the world’s reserve currency.

To an extent, China and the US are talking past one another. The Americans are even complaining about having to translate Chinese trade proposals from Chinese into English!

Given the complexity of the rivalry between the US and China, the best outcome one can hope for in 90 days time is a some form of combination of minor agreements and postponements.

The really important battle for Ireland and for the EU will be that of defending and strengthening the WTO.

Arbitration, rather than confrontation, should be the way to resolve trade disputes.

UKRAINE……A KEY TO EUROPE’S FUTURE

Control over Ukraine’s fertile land and natural resources has been a source of conflict throughout modern history.

The Russian occupation of Crimea, which is part of the sovereign territory of Ukraine, is the first forcible alteration an international boundary in Europe since the end of World two.

In Eastern Ukraine, the conflict between Russian backed militias and the Ukrainian Government led to the shooting down by the militias of a passenger airline full of Dutch holiday makers returning from the Far East.

Ukraine is a democracy, but is afflicted by corruption and by constant tension between its President and its legislature under its US style constitution.

Ukraine looks to the European Union for salvation, but the EU is turning inwards and giving priority to other problems.

In an attempt to understand the challenge, I read “The Gates of Europe” by Serhii Plokhy. It  is a history of Ukraine from the earliest times. Plokhy is a Professor of History in Harvard.

At the outset of the First World War, Ukraine was divided between the Russian and Austro Hungarian Empires. The between the Russian Orthodox Church and the Greek Catholic Church, which is in communion with Rome but following Eastern rite, are active in Ukraine, and religious divisions have been a source of conflict in the past..

Both Russian and Ukrainian languages are spoken in the country, Russian more in the cities and in the east of the country.

The Ukrainian language is now  promoted as a badge of national identity, as Irish is in Ireland. Thanks to immigration from Russia the country is ethnically diverse, but partly because of high handed Russian actions, even ethnic Russians in Ukraine increasingly identify themselves as Ukrainian.

Plokhy traces the cultural and political influences that shaped the country in the past two millennia.

Ukraine was onn the frontiers of the Roman Empire. It came under the influence of Greeks of the Byzantine Empire from Constantinople, who introduced Christianity to the area in 989 AD

It was from Ukraine that Christianity was introduced to Russia, which partly explains the Russian view that Ukraine should not be separate from Mother Russia.

In 1240, Kiev fell to the Mongols, who ruled the area for 100 years. The Mongols were defeated in 1359 and Ukraine became part of the Grand Duchy of Lithuania, which was dominated by Poles and Lithuanians. The Grand Duchy’s Catholic religious policy was resented by Orthodox Ukrainians.

From 1590 to 1646, a series of risings by Cossacks (armed bands of native Ukrainians) weakened the Grand Duchy and oriented Ukraine towards Moscow and the Orthodox Church.

The autonomy enjoyed by the Cossacks within the Russian Empire was ended by Catherine the Great in the 1770’s, and that fuelled resentment.

Plokhy describes the tragedy of the First War, when Ukrainians fought on both sides.

At the end of the war, and during the Russian Civil War, Ukraine briefly became an independent state. That independence was ended by the victory of the Bolsheviks in the Civil War.

Plokhy shows how the Jews, who were numerous in Ukraine , became scapegoats.

Under Stalin in the 1930’s, Ukraine suffered a terrible famine because of Communist determination divert food supplies into the cities to help industrial expansion.

During the Second World War, which was fought over the territory of Ukraine, Ukrainian nationalists took up arms for the independence of their own country, against both the Nazis and the Soviets.

The pro independence fighting against the Soviet continued well into the 1950’s, but without any aid from the West.

Ukraine did comparatively well, while Stalin’s successor Khruschev, and his protégé Brezhnev, were   in charge of the Soviet Union.

Under Gorbachev, things got worse for Ukraine, especially in the aftermath of the Chenobyl nuclear disaster which affected 3 million people in Ukraine and where the risks to the population were partially covered up by the regime.

While it was the Baltic states and the Russian Federation, led by Yeltsin, which precipitated the breakup of the Soviet Union, Ukraine took full advantage of it, and declared itself independent in 1991.

Interestingly the US, which favoured independence for the Baltic states, opposed it for Ukraine at that time. President Bush senior foresaw the effect Ukrainian independence would have on Russian opinion.

As an independent country, Ukraine shared the economic collapse in most post Soviet states caused by the stress of adjusting from a Communist to a market economy. Unlike Russia , Ukraine does not have vast natural gas reserves, but, also unlike Russia, it has remained a democracy.

This is an important book, because it deals with a country that could become a source of conflict between EU countries and the Russian Federation in the foreseeable future.

Russia feels the Ukraine should be part of its “sphere of influence”, but the EU rejects the notion of “spheres of influence”.  Many in the EU believe Ukraine could eventually be eligible to be an EU member (something that most Ukrainians would like but the Russians would hate).

In some circumstances, Ukrainian membership of the EU could benefit Russia, but nobody in Moscow sees it that way……..at least, not yet.

 

CHINA TRANSFORMED …..A NEW BALANCE OF POWER

china-flag-mapThe economic transformation of China is the most important global economic event of the past forty years. It has changed the balance of power on the Eurasian landmass, in ways we are only beginning to comprehend.

The economic transformation of China happened because, since 1979, there has been lively economic competition within China, something that was not allowed in the Soviet model.  China’s economy grew, while the centralised Soviet system stagnated. This explains why Communism survived in China, but collapsed in the Soviet sphere. China also grew thanks to the opening up of global trade, under successive rounds of trade liberalisation, which allowed China to build a powerful export sector.

Now China is having to transform itself again. Its export led model has reached its limits. Labour costs are rising because the big transfer of labour from farming to industry is over, and the Chinese population is beginning to age. The working age population of China peaked in 2015 and will decline from now on. Chinese exporters are being undercut by lower wage economies like Vietnam.

The Chinese economy has also reached environmental limits. The pollution level in some cities is dreadful, and the air is dangerous to breathe, even on an apparently clear day. I  experienced  this for myself when I visited China in the past fortnight on business.  Environmental losses reduce China’s GDP by 10%.

The proportion of its population living in cities will grow from 20% in 1978, to 50% today, and to 75% by 2030. This will lead to even more pollution, unless the cities are built to a different model. China is devoting a lot of research to this and may soon become an exporter of green technology. Necessity is the mother of invention.

Meanwhile China has an increasing number of well off, high spending, consumers. The Boston Consulting Group recently estimated that what it calls the “upper middle class” ( a group that can afford regular foreign holidays) will rise from 53 million today, to 102 million by 2020. Interestingly it estimates that, by 2020, the upper middle class in will reach 73 million in Indonesia, 32 million in India, and 21 million in Thailand.

At the other end of the scale, China has not got a well developed welfare system. The income gap is very wide. Stress is high. Parents are left looking after grandchildren back in rural China while sons and daughters seek work in the cities. There is a two tier labour market, under which long established city residents qualify for social supports, but recent arrivals in cities do not, and can remain in a precarious situation for years.

Nationalism is very strong in China, and one can foresee a clash between the American nationalism of Donald Trump, and the Chinese nationalism of the Communist party.

Both can exploit suspicion of the other, to rally political support internally.

The United States should be cautious. The abandonment of the Trans Pacific Partnership, by both Donald Trump and Hillary Clinton, will leave China in the driving seat, as far as trade policy in East Asia is concerned.  It is ironic that China increasingly sees itself as the defender of an open world trading system, while the United States adopts protectionist rhetoric.  Adding a conflict over the status of Taiwan to this mix could have unpredictable results.

If, under Donald Trump, the US moves closer to Russia, the EU may find its interests aligned more with those of China in some fields, like climate change.  This will be reinforced by the anxiety many of the central European members of the EU feel about Russian intentions, and Russia’s view that some of them should properly belong in a Russian sphere of influence, rather than being so closely aligned with Western Europe through the EU. Russian support for west European politicians like Marine le Pen is part of a strategy to undermine the EU.

Historically, China has been a supporter of EU integration, while Russia has been hostile, because it felt itself excluded from pan European security structures.  Russia feels itself hemmed in. Russia’s seizure of Crimea, and its involvement in the Syrian Civil War, can also be seen as attempts to break out of its strategic isolation and gain access to the Black Sea and the Mediterranean.

It is also to break out of its sense of isolation, that China has promoted its “one Belt, One Road” policy to link itself with Western Europe.

As a continuing member of the European Union, it will be in  Ireland’s economic and political interests  to play its full part in building a  balanced structure of peace on the Eurasian land mass, that protects the rights of small states, but  which also one that ensures that no great power feels itself hemmed in, or isolated. For that is how wars start.

 

WHO WILL PROTECT IRISH AND OTHER EU FIRMS DOING BUSINESS IN THE UK AGAINST DISCRIMINATION, AFTER BREXIT?

cropped-European-Union-flag-006-1.jpgMany Irish firms, and firms from other EU states, have extensive investments and trading interests in the UK. Indeed this must one of the most intense investment relationships in the world.

For the past 40 years, these investments have been protected by UK membership of the EU, which allowed firms, who might feel they were being discriminated against, in favour of British owned competitors, to appeal not only to the UK Courts, but also to the European Court of Justice(ECJ)

Yesterday the UK Prime Minister announced that , once the UK leaves the EU, the jurisdiction of the ECJ in the UK would be ended. Thus there will no longer be any, non UK controlled, arbiter to protect Irish or other EU investors in the UK against discriminatory laws by a future UK government. The UK has no written constitution.

Therefore it will be important that there be a robust independent investor protection disputes mechanism, capable of overturning discriminatory decisions that might be taken by the UK courts against the interests of EU owned firms.

 This must take immediate effect the day the UK leaves the EU.

It cannot wait for the longer term trade agreement the EU negotiates with the UK, which may take years to finalise. Investor protection clauses can be controversial, as we have seen with the TTIP negotiation, and are a reduction of “sovereignty” in the abstract sense.

But , given three factors

  • the highly nationalistic tenor of UK politics at the moment,
  • the dramatic ideological trends in the Labour  party, and
  • the likelihood of trade tensions between the UK and the EU,

Irish and other EU firms doing, or intending to do, business in the UK will need a very robust independent investor protection regime.  These three phenomena must be confronted realistically. We must not assume that everything will work out in the end. It may not!

Unless Irish and other European firms have concrete assurances that they will not face discrimination of any kind in  their activities in the UK after Brexit, they may have to commence disinvestment to protect their shareholders’ legitimate interests. The proposed “Great Repeal Bill”, reversing EU law in the UK, will need to scrutinised with immense care by  Irish and other European investors in Britain. Political assurances will not be good enough.

In the present atmosphere of UK politics, it is all too easy to envisage calls for discrimination in favour of UK firms in contracts with UK local authorities, in access to certain public services, and in standards for goods and services. All would be done, of course, in the name of “protecting British jobs”, or “defending British standards”.

If the ECJ is no available to protect Irish and EU firms from discriminatory practices on the UK market, alternatives will have to be agreed with the UK. These alternative mechanisms, investor courts in other words, will have to have the power, like the ECJ, of striking down UK decisions, including UK court decisions,  that they deem to be discriminatory against the interests of an EU investor.

These mechanisms are known as  an Investor-state dispute settlement (ISDS) or an  investment court system (ICS). They are an instrument of public international law and  grant an investor the right to use dispute settlement proceedings against a country’s government.

Provisions for ISDS are contained in a number of bilateral investment treaties, in certain international trade treaties, such as the North American Free Trade Agreement (chapter 11), the Trans-Pacific Partnership (chapters 9 and 28) and the Comprehensive Economic and Trade Agreement (sections 3 and 4). ISDS is also found in international investment agreements, such as the Energy Charter Treaty.

If an investor from one country (the “home state”) invests in another country (the “host state”), both of which have agreed to ISDS, and the host state violates the rights granted to the investor under public international law, then that investor may bring the matter before an arbitral tribunal.

The prospect of having to use such cumbersome procedures will undoubtedly be daunting and difficult for small firms.

This will be particularly difficult for Irish firms who have been used to treating the UK as part of their “home market” since 1966 and the Anglo Irish Free Trade Agreement.

In the aftermath of the original referendum decision, soothing statements were made by British Ministers about the position of Ireland, and about there being no “hard border. But Prime Minister May’s speech to her Party Conference yesterday represents a major shift in position. She is going for a “hard Brexit”, which inevitably means a “hard border”. She offered no assurances to Ireland.

Indeed it is hard to see how the UK could offer special protection to Irish firms investing in the UK that it was not also offering to French or Romanian firms.

The Irish food industry is heavily invested in the UK market. Before it joined the EU, the UK discriminated heavily in favour of UK farmers and against Irish exports. The food industry is far more complex now than it was forty years ago, and the opportunities for discrimination more subtle and more numerous.

The European Union will need to adopt a tough line on investor protection in the forthcoming negotiations and make sure these protections apply in full from the moment the UK leaves, and are not left to a wider long term negotiation.

THE UK NEEDS TO WORK OUT WHAT IT VOTED FOR LAST MONTH

union-jack-1027896_960_720I believe the UK itself needs to prepare a realistic proposal, taking the EU Treaty obligations of others into account, on the future relationship between the EU and the UK that it believes would be in the interest of both the UK and the EU.

That is a process that has to take place in the UK alone and not, at this stage in the other EU countries.

The UK needs to do its home work first. The UK needs to take full ownership of the challenge posed by decision in the referendum that the UK itself decided to have .

My own sense is that a relationship between EU and UK that is limited to trade in goods, and to free travel with passport controls, is easily attainable, if the UK is willing to accept EU goods safety standards.

The question is whether the UK would settle for that.

Services and movement of people are inherently inter related so this would not cover financial services exports from the UK.

On migration, the UK position is made difficult by the fact that the UK long pressed for early EU enlargement, and then, like Ireland, opened itself the migration from the new EU members without availing of the transition period.

Now, without acknowledging its own contribution to the dilemma in which it finds itself, the UK has decided to reverse all this by leaving the EU, as if the EU alone was responsible for the consequences of these UK decisions.

I fear that these contradictions within the thought processes of the UK itself will not be resolved without some sort of crisis.

From what I read, it seems to me that UK leaders are still going around the continent looking to EU leaders to solve the contradictions in the UK’s own thinking for them, which is a bit unfair.

The UK should not try to pick off individual EU states by making them special offers, because that will anger other EU states. The governments of all the 27 remaining EU states have to bring their public opinions with them too

The UK needs an agreement that all the EU states and the elected European Parliament can live with.

Ultimately all EU states are bound by the Treaties, and are required by law to cooperate sincerely with one another to “attain the Union’s objectives”.

The European Court of Justice and the European Commission are obliged to follow the EU Treaties and ensure they are respected by the member states, the Council of Ministers and the European Commission.

The Commission represents the common EU interest, and is particularly attentive to the needs of smaller states. The UK should never give the impression that it would like to bypass the Commission, by going over the Commission’s head to Berlin or Paris.

While the European Council will authorize the negotiations with the UK, it is the Commission that will do the negotiation. The European Council can issue negotiating directives to the Commission, but the European Council acts by unanimity, which leaves a lot of discretion to the Commission.

So the UK needs to come up with a comprehensive proposal that is framed in the context of these Treaties and of the needs of each of the 27 (very different) EU states.

It should probably publish that proposal, in the form of a Green Paper, before triggering Article 50.

THE EU IS ALREADY DEMOCRATIC…..TWO WAYS IN WHICH THAT CAN BE MADE MORE VISIBLE

The-UK-and-EU-flags-010One of the recurring themes in the debate about UK membership on the EU is the (false) claim that the EU is not democratic.

All EU legislation has to be passed by a democratically elected European Parliament and also by a Council of Ministers who represent the democratically elected governments of the 28 EU countries.

It is true that the members of the European Commission are not democratically elected by the people, but their names must be proposed by democratically elected governments of the 28 countries, and the Commission as a whole must be approved by the democratically elected European Parliament.

In many countries, Ministers serve in government who have not, as individuals, been elected directly. Their democratic mandate comes from the elected government of which they are part.

This is not to say the there is no room to improve the democratic legitimacy of the EU, and of its policies. I believe the EU could respond to the UK referendum by further enhancing EU wide democracy.

I make two suggestions to improve the visibility of the democratic character of the EU, and create a genuinely European democratic debate, rather than 28 separate national debates about EU matters

  • The President of the European Commission should be directly elected in a two round election by the entire people of the EU, at the same time as the European Parliament Elections
  • It should be possible for the National Parliament of the 28 to come together to request that the Commission put forward a proposal on a particular matter. National Parliaments( if a minimum number agree) already have a right to petition to delay a piece of EU legislation, so why not give them a positive right to seek the promotion of a piece of legislation (if they can obtain a similar level of support across a number of countries).

WHAT HAPPENS IF THE UK VOTE IS TO LEAVE THE EU?

cropped-European-Union-flag-006.jpgI spoke earlier this week at a very interesting meeting organised by the County Meath Association of Chambers and Business Councils in Kells Co Meath on the topic of Brexit.

Next week, I will speak on the subject at meetings in Liverpool and Birmingham, and will be able to bring to the attention of UK voters at these meetings some of the concerns expressed in Kells.

The consensus at the meeting in Kells was that there would be a dramatic impact on the Irish economy if the UK, including Northern Ireland , left the EU.

DISRUPTION OF EXISTING BUSINESS PATTERNS ON A HUGE SCALE IF TARRIFS HAD TO BE REINTRODUCED

Patterns of trade on these island that have grown up over centuries, would be radically disrupted.

All forms of distribution within the two islands would be disrupted in EU tariffs had to be charged on goods coming to the Republic from Northern Ireland and Britain.

One member of the audience, who holds a very senior position in the food industry , pointed out that products as simple as a sandwich sold in a service stations, now contain a mixture of ingredients produced in the Republic of Ireland, Northern Ireland and in England.

If the UK left the EU, and Ireland had to impose the Common External Tariff of the EU, on food ingredients coming from either Northern Ireland or Britain, many present food distribution systems would become uneconomic, and hundreds of jobs would be lost.

The disruption of the complex supply chain of the modern food industry would be dramatic.

The Common External Tariff can be as high as 35%.

The knock on effect is impossible to calculate. It would be like having to unscramble an omelette!

IMMEDIATE EFFECT WOULD BE A CHANGE OF GOVERNMENT IN LONDON

I pointed out that this would not, of course, happen overnight on 24 June, because Britain would first have to decide on who would be Prime Minister and what would be the make up on a post Brexit Government.

How long would it take to elect a new Tory leader? Until that issue is decided no decisions on EU policy would be possible.

Only once that was settled, could the UK begin to decide what type of new arrangement it would seek to have with the EU.

NEW UK GOVERNMENT WOULD HAVE TWO OPTIONS

It would have two basic options

  1. it could ask to leave the EU and, like Norway, join the European Economic Area, or
  2. it could try for a wholly new special trade agreement, like the agreement Canada or Switzerland has with the EU

THE EUROPEAN ECONOMIC AREA (EEA) OPTION

The first option could be put in place quickly and would not disrupt trade all that much. It would have the disadvantage that the UK would still have to implement EU regulations and contribute to the EU budget.

Technically it would, however, comply with a referendum vote in favour of leaving the EU. It would buy time, allowing us to see whether the fears being stoked up in the present campaign have substance or not.

THE TRADE AGREEMENT OPTION

The second option would be much more disruptive.

It would require a detailed negotiation on every type of product or service that might be sold across the border in Ireland or between the UK and the 27 member countries of the EU.

Such an agreement would take years to negotiate (probably 7 or 8 years), and would be subject to domestic political constraints in all EU countries. We can see with TTIP, which is a much narrower negotiation, how matters can become the subject of fears, misrepresentations and lobbying.

It is unlikely that a Trade Agreement would allow the UK to sell financial services into the EU. Indeed it would be in the interest of countries that might hope to attract financial services out of London and into their own capitals to make sure the UK got no concessions on that point.

WHY IS THE SOVEREIGN UK PARLIAMENT DELEGATING ITS RESPONSIBILITIES TO A REFERENDUM?

I believe that a referendum is not a suitable method for making a complex choice like the one UK citizens are now being asked to make.

The UK used to be a parliamentary democracy, not a plebiscitary democracy , like Switzerland Parliament is sovereign under the UK constitutional system, but the exercise of this sovereignty is now being delegated by parliament to a referendum.

This displays a lack of confidence by Parliament in itself.

A referendum requires people to make a snap decision on a single day, without knowledge of the future implications of what they are doing. It requires complex contingencies to be reduced to a single “yes” or “no” question.

A parliamentary process, in contrast, goes on over a long time, and thus allows new evidence to be taken on board, before an irrevocable decision is made.

THE UK VOTES TO LEAVE………WHAT HAPPENS THEN?

The-UK-and-EU-flags-010

Paper prepared by John Bruton, former Taoiseach, on what would happen if the UK votes to leave the EU, the procedures and options available, and the implications for Ireland , the European Union and the UK itself.  

Next June the people of the UK may vote to leave the European Union. At the moment, a narrow majority favours remaining in the EU, but a large group are undecided. That group could swing towards a “leave” position, for a variety of reasons, including what might be temporary EU problems with refugees. However temporary the reasons might be, a decision to leave, once made, would be politically irreversible.

So it would be wise for Ireland to give thought now to how it might react to a decision by UK voters to leave the EU , and how it would play its hand in the subsequent negotiations. A number of scenarios will arise and Ireland needs to identify its red lines in each one of these.

THE NEGOTIATIONS COULD ONLY TAKE 21 MONTHS

The negotiation of a UK withdrawal from the EU will be done under Article 50 of the Lisbon Treaty. It will have to be a quick negotiation because Article 50 contains a two year time limit. In practice the negotiation of withdrawal arrangements will all have to be finished in about 21 months.

From the date that the UK Prime Minister informs the European Council of his/ her decision to implement the referendum decision, the two year time limit starts to run. Assuming a June 2016 Referendum, I calculate the Withdrawal Treaty would have to been negotiated, ratified, and brought into force by July 2018.

So the negotiations themselves between the EU side and the UK side would probably have to be finished at latest by April 2018, to allow time for parliamentary ratifications.

In the event that no agreement had been reached within the deadline, the EU Treaties “would cease to apply” to the UK. The UK would simply be out of the EU, without even a trade agreement.

This would be exceptionally disruptive of the UK economy, and of some, but not all, EU states’ economies. It would be particularly bad for Ireland. Our exports to the UK would be at risk, and the border would be deepened with incalculable consequences.

UNANIMITY OF ALL EU STATES NEED TO EXTEND THE TWO YEAR LIMIT

The two year limit could be extended, but only with the consent of all 27 members of the EU. If the negotiations had become contentious, or if the UK demands bore heavily against the interests of one or two states, one could see the required unanimous consent for an extension of negotiating time being withheld.

This risk of a single refusal to extend time for negotiation, adversely affects the dynamics of the negotiation, from a UK point of view, because the UK has more to lose from failure. It is not inconceivable that a populist government in a member state might hold a time extension for the UK hostage to obtain some other unrelated matter, such as debt relief. A European Parliament in election year could also be a source of uncertainty.

While a time extension would require unanimity, the actual negotiation of the terms of withdrawal would need a “Qualified Majority” within the European Council.

NO GUARANTEE OF PROTECTION OF IRISH INTERESTS IN WITHDRAWAL TREATY

That means that the terms of the Withdrawal Treaty would need to support of 72% of the 27 EU governments, collectively representing at least 65% of the total EU population. Ireland, on its own, could not block a Withdrawal Treaty that contained terms that were against Irish interests. Nor could Ireland guarantee it would be agreed on terms that would adequately protect Ireland’s interests. For example, Ireland could not necessarily prevent passport controls or customs posts on the border in Ireland.

While 72% of EU member state governments must agree to the Treaty terms, 100% of the 27 national parliaments must do so, and ratification could become entangled in General Elections in some states in the interim.

While our fellow EU member states will undoubtedly recognise the Ireland will suffer more than any other EU state from a UK withdrawal, that does not guarantee that Irish interests will be taken into account in all cases. Quid pro Quo will apply, and that could cause difficulties on vital Irish interests on EU issues that have little direct bearing on the UK Withdrawal as such.

Given the short time involved, the UK will not have the option of pursuing a relaxed post referendum exploration of different types of external association with the EU. It will probably have to decide at the outset what form of relationship it is seeking. It will have to choose among options that do not require the EU itself to change its Treaties.

The options were well described in a recent paper by Jean Claude Piris, former legal advisor to the European Council.

OPTION ONE…..UK JOINS THE EUROPEAN ECONOMIC AREA

The simplest would be to join the European Economic Area (EEA), while leaving the EU itself. The EEA allows Iceland, Liechstenstein and Norway to take part in the EU Single Market, but without being in the EU Agricultural, Fisheries, Judicial and Foreign Policies.

In the EEA, the UK would still have to contribute to the EU budget, to apply EU Single Market rules without having the say it now has in them, and to allow free movement of EU migrants to work in the UK on the same terms as locals.

Ireland’s problem with this option would be the departure of the UK from the EU Common Agricultural Policy which would raise issues of fair competitive access for Irish farm produce to the UK market. Management of Atlantic Fisheries would also become more contentious.

OPTION TWO……THE SWISS APPROACH

Less simple, would be for the UK to seek to make tailor made agreements with the EU, like Switzerland has. This negotiation would be a very complex process where tradeoffs would have to be sought between different sectors and national interests. The Swiss model has not worked well from an EU point of view, and one could expect EU negotiators to take an exceptionally tough line if this is what the UK seeks. The issue of access to the UK labour market for EU citizens would certainly be a demand from the EU side in such a negotiation.

In practice, if not in theory, the UK would have to implement EU law in all the areas for which it sought access to the EU market. This would be very problematic from the point of view of the financial services exports from London to Europe.

Once such a deal had been concluded, the EU side would be under pressure to tilt its own internal rules to favour financial service providers in the EU itself. If a system of mutual support and mutual supervision of financial service providers existed within the EU, and the UK was not part of that, there would then be valid grounds for objecting to UK financial service providers benefitting from a market they were not supporting on the same basis as EU providers.

This could hurt London, and Dublin could be a beneficiary. Outside the EU, the UK could do little to stop this. The European Banking Authority would have to leave London and there would be a good case for relocating it in Dublin.

OPTION THREE……A CANADA STYLE AGREEMENT WITH THE EU

Another option would be for UK just to seek a trade agreement with the EU, like Canada has. This option is favoured by some of those who want the UK to leave the EU, so it needs to be studied.

The first thing to say about this is that it would have to be negotiated within the two year time limit applying to a Withdrawal Treaty under Article 50, and would presumably have to be part of the Withdrawal Treaty. The existing Canada Agreement took 6 years to negotiate and dealt with a much less complex relationship than that between the UK and the rest of Europe. It is very hard to see how all this could be done in the time frame. The European Parliament would actively involve itself in the details. The UK would be excluded from the European council discussions on the topic.

A Canada type agreement would not necessarily mean continuing tariff free access to the EU for all UK goods. Some tariffs remain on some Canadian goods for the time being.

It is unlikely that a trade agreement like this, or even a Customs Union of the kind Turkey has with the EU, would allow the UK access to the EU financial services market and financial services are one of the UK’s biggest exports.

It is clear that under a Canada style agreement, the UK would have to comply with EU rules on any goods or services it wanted to export to Ireland or to any other EU member state. The UK would have no say in the framing of these rules, but it would still be bound by them.

Of course, the UK would be free to make its own rules for goods and services sold within the UK, but the downside of that would be that UK firms would then have to operate under two different rule books, one for the UK and another for the EU, thereby adding to their costs and damaging their competitiveness.

Once a Canada style agreement had been made, the UK would be out of the EU and would have no control over any further rules on new topics that the EU might need to make.

The Canada agreement is clear that it does not restrict the EU making “new laws in areas of interest” to it.

If the Canada model was followed there would be a Regulatory Cooperation Forum to cover this sort of thing. In the Canadian model, this Forum would allow

  • “exchange of information and experiences”,
  • “only provide suggestions and make no rules” and
  • “not have decision making powers”.

In other words the UK would be in a worse position than it is as a voting member of the EU.

If , after the UK had withdrawn, the EU deepened its service market further, allowing new access rights across border for service providers within the EU, the UK would miss out on this and would have to negotiate access for its service providers on a case by case basis.

The rights of the 1.8 million UK citizens now living in EU countries would also be less secure. UK citizens, living in Ireland or the continent, would enjoy only what Canadians enjoy.

WHAT WOULD HAPPEN TO EXISTING EU TRADE DEALS, AND TO EU LAWS NOW ON THE UK STATUTE BOOK?

Furthermore, the UK would have to start from scratch negotiating trade agreements with countries all over the world, to replace the trade agreements it now has with all those same countries as a member of the EU.

The UK Parliament would certainly be busy as well, in that it would have to pass new UK laws to replace all the EU regulations that are now part of UK law.

The only alternative to this would be for the UK to decide to leave all the “acquis” of EU rules and regulations, which are now supposedly so objectionable, on the UK statute book, as they are, for a long time to come.

One proponent of UK exit from the EU, Lord Lamont, admitted, in a debate with me recently, that this is what they would have to do.

Leaving the EU, only to leave EU rules on the UK statute book, seems like a lot of trouble to achieve very little!

A SECOND REFERENDUM?

There would be no second referendum on the final terms of any Withdrawal Treaty.

This has been made clear by Chancellor Osborne. That has to be his position because, if there was to be such a referendum, the choice would presumably be either to leave on the basis of the terms of withdrawal Treaty, or stay in on the basis of the EU membership exactly as it is today.

If such a second referendum was formally in prospect, it is hard to see that the EU side would have any incentive at all to offer the UK any concessions at in the Withdrawal Treaty negotiations. They would be mad to do so, because all the concessions would achieve, would be to make withdrawal more attractive.

CONCLUSION

I believe that the architects of the UK’s renegotiation/referendum strategy did not adequately consider how hazardous the voyage is, on which they have so casually embarked. They may have overestimated the EU’s political capacity to devise yet another special deal for the UK.

Ireland, for its part, will have to adopt a very tough, deliberate, and multifaceted negotiating strategy, as long as this avoidable uncertainty prevails.

A REFLECTION ON SOME OF THE CHALLENDES THE EUROPEAN UNION MUST MEET TODAY

We are in  a  time of war, war not in Europe itself, but close enough to Europe to have led to massive outflows of refugees across borders and into Europe. I heard this described at the EPP Congress in Madrid as the “most serious crisis for the European Union since its creation”.  This is not an exaggeration.
 
This refugee crisis is on a scale unprecedented since the Second World War and the Spanish Civil war, because this is a war, in Syria and Iraq, of a ferocity and intensity not seen since then 300,000 people have been killed in the Syrian War.
 
Most of these people are not coming to Europe for economic reasons, or because they are on a mission of any kind, but because they are in fear of their lives. They are seeking refuge. They are the human embodiment of the price of war.
 
Their plight is a human manifestation of what the voluntary European Union was created to avoid in Europe itself …war.
 
UNITY OF SOME KIND IN EUROPE HAS BEEN THE RULE, NOT THE EXCEPTION OVER THE PAST 2500 YEARS
 
If the EU is facing its most serious crisis ever, it is important that we keep a sense of historical perspective. Only thus can we realise how much is at stake.
 
Over the past 2500 years, Europe has tried various methods to create internal security on this continent. The idea of European political unity of some kind is not something new.
 
It was achieved, initially by force, in the form of the original Roman Empire. Because it was created by force, its unity also had to be maintained, from time to time, by force.
 
When it came to an end there was a dramatic collapse in living conditions, because Roman money, as a continent wide means of exchange,  and access to silver to make it, was lost. Living standards in Britain, for example, fell dramatically in the 5th Century AD. There are lessons in this story for the 21st century.
 
Later, from the Middle Ages up to the Reformation, there was a form of unity in Europe when, apart from his religious role, the Pope exercised, without the use of military sanctions, a role of arbiter between European states, analogous to that of the European Court of Justice, combined with elements of that of  the United Nations. 
 
Even after the Reformation and the Thirty Years War, a form of unity in part of central Europe persisted in the continuance of the Holy Roman Empire, until, after 100 years,  that was dissolved by Napoleon, who attempted to impose his own form of secular European unity by force of arms. 
 
THE SHORT,  AND BLOODY,  ERA OF NATIONAL SOVEREIGNTY
 
When Napoleon failed at Waterloo in 1815, Europe entered the era on nation states, supposedly based on absolute national sovereignty, and the balance of power. That era ended, after a mere 150 years, in the holocaust of two world wars, the last of which was preceded by an economic crash and the collapse of democracy across the continent.
 
THE RETURN TO UNITY AS THE GOAL
 
In response to that failure, something entirely new was attempted, a union of European states held together not by military force, or even by  religious sanction, but by a free and voluntary pooling of sovereignty, based on freely agreed rules. That in the European Union of today.
 
There is much to criticise about the EU, and I will voice some myself this morning, but we should not lose sight of the bigger picture.
 
The Union has attracted a stream of new member states, starting with 6, it is now has 28.  Other  Federal Unions and Confederations, in other parts of the world, have not had that experience.
 
It has created  a single market of 500 million consumers, although some barriers still remain. 
 
ANOTHER ECONOMIC CRISIS…BUT NO RETURN TO PROTECTIONISM, DICTATORSHIP OR WAR AS IN THE 1930’S
 
The EU has come through an economic collapse in Europe, similar to the one that occurred in the 1930’s, but , in contrast to the 1930’s democracy has been preserved in Europe, protectionism and competitive devaluation have been avoided, and, most importantly, European states are still at peace with one another. 
 
AN UNPRECEDENTED, AND UNEXPECTED, REFUGEE CRISIS
 
Now, just as it has begun to put in place a banking union to underpin its currency, and  fiscal rules to ensure that this generation does not rob the next by excess borrowing, it now faces a challenge for which it seems quite unprepared, a flood of refugees fleeing war in their own countries– Syria, Iraq, Afghanistan and Eritrea— and impossible living conditions in the countries in which they originally sought refuge—-Lebanon, Jordan and Turkey—-who have so many refugees they cannot cope with them. 70% of Turks say the 20 million Syrians in their midst should go home
 
In an ideal world, one would say that this refugee crisis is a global one and all the countries of the world should come together to receive them on a shared basis.  But this is not going to happen. They are heading for Europe.
 
Controls on the movement of people across Europe’s external borders, notably between Greece and Turkey, have broken down. As a result of that failure, barriers are now being re erected between countries within the EU, undermining one of the freedoms on which the EU is based, freedom of movement of people.
 
If this persists, one could see it leading to interference with the freedom to move goods across Europe too.  This is an existential challenge.
 
But a pooling of sovereignty can only work if states are able and willing to exercise the sovereign powers they have, one of which is controlling their portion of the EU,’s external border. So the next step will be a major EU border force, and EU reception centres where those who qualify as refugees can be separated from those who do not and the latter sent home.
 
Those who are refugees will need to be shared among all 28 EU states, which will not be easy as living standards vary within the EU and refugees themselves will  all want to go to the more prosperous states. That said, I believe a majority of them will want to go home to their own countries if peace can be restored.
 
TOO SLOW APPLYING THE LESSONS OF THE FINANCIAL CRISIS
 
Meanwhile the EU is moving too slowly in applying the lessons of the financial crisis. Most money in use is not coins or notes, but bank credit of one kind or another. So a currency union without a banking union never made sense.
 
We have some elements of a banking union now, a single supervisor for most European Bank and a common EU rule for winding up banks. But these have not been tested yet. That test will come when the EU has to close down a bank in a member state, imposing losses on shareholders bond holders and even customers. Will the EU authorities have the political capital to do that?
 
It will be particularly hard to do because Germany has resisted the idea of a common euro are wide deposit insurance system which would spread the losses. The burden will fall solely on the country in which the bank is being closed down. That is not politically viable….an EU institution closing down a bank, which it had supervised,  in a state and that state alone bearing the depositor insurance costs. 
 
There also may be problems with the Fiscal Rules designed to reduce the debt levels of EU states. These debts are just about bearable now, but if interest rates returned to normal levels, what would happen. For example, the proposed Italian budget for next year, which should be reducing the deficit, is actually increasing it. That may make sense in the context of Italian politics, but it undermines the rules, in the same way that France and Germany undermined the rules 10 years ago.
 
Europe does not need to create a complete political or economic union to solve these problems. That is politically impossible. But the European Union does needs to come to a shared pragmatic understanding on all of these problems, and think out a long term plan that serves the interests  of a very diverse group of countries in a fair and speedy way.
 
MEANWHILE THE EU MUST DEAL WITH THE UK PROBLEM
 
At a time when the EU is grappling with its own existential issues, it has the deal with one member state which wants to reconsider whether it should be in the EU at all or not.  I will not say much about the details of the UK case, and will just make a few brief points.
 
At a time when Polish and Baltic state populations are being asked to accept refugees to relieve the pressure on Italy, Greece and Germany, it will not be easy to persuade them that their citizens should have less  in work social benefits in Britain, when Britain is exempt from taking any refugees
 
If Britain wants to be exempt from paying any of the costs of future EU banking failures, it is hard to grant it a veto over rules that might be designed to prevent such failures.
 
On the other hand, British demands for a speedy conclusion of the TTIP agreement with the US, and for a completion of, the  long delayed,  EU single Digital and Services markets, are a big opportunity for Europe. They should be grasped with both hands.
 
 
 
 

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