Monday, 7 December 2015

Single Market - UK trade with EU


In a series of posts, I'm aiming to discuss the "Single Market", one of the major topics of  the EU Referendum.  In this post, I will be looking at UK trade with the EU.

UK Exports as a proportion of UK economy

The Office for National Statistics (ONS) has analysed the importance of the UK's trade relationship with the EU , which shows for the year 2014:
- UK exports to EU = £227 billion (44.65% of total exports)
- UK exports to non-EU = £281 billion (55.35% of total exports)

However, the ONS figures overstate the real level of UK exports to the rest of the EU, due to 2 separate distortions:
- "Rotterdam-Antwerp Effect" where exports destined for non-EU countries are routed via the ports of Rotterdam or Antwerp and so are recorded as exports to Netherlands or Belgium,
- "Netherlands Distortion", where investments and subsequent income are channeled through  "brass-plate" holding companies for tax purposes by investors domiciled in other countries.

The ONS have not attempted to estimate these effects, but have made reference to these distortions in recent bulletins.  The think tank Global Britain have analysed the effect of these distortions and estimated that over 11% of the trade recorded as exports to the EU was in fact exports to the Rest of the World, which would suggest that the share of UK exports is more likely to be:
- UK exports to EU ~40%
- UK exports to non-EU ~60%

The ONS "Composition of Demand" statistics for 2013 show that UK exports contribute 23% to the UK economy.  Based on this, we can estimate that the contribution to the UK economy from UK exports to EU as 40% x 23% = 9.2%.

UK Trade Deficit with EU

The ONS figures for 2014 show a UK trade deficit with the EU of £61 billion, i.e. we bought more goods/services from EU states than EU states buy from us.  In fact, a trade deficit has been an enduring feature since the UK joined the then common market in 1973 (despite having been in trade surplus with Europe during the 1950's and 60's). The table below is based on ONS statistics and has been extracted from Business for Britains "Change or Go" document


This deficit has widened appreciably in recent years, due in part to the on-going Euro crisis, which is depressing demand from most Eurozone states and providing an artificial boost to German export competitiveness.

Although the UK has historically recorded a trade in goods deficit with the EU, its trade in services balance with the EU is much more favorable, running a surplus in each year since 2005, which reached £15.4 billion in 2014.  While the Single Market was theoretically implemented in 1992, there is unfortunately still no effective single market in services and little progress is being made to remove trade barriers in services - which is a particular disadvantage to the UK (ranked number 2 in services globally after the USA).


UK Trade with Rest of the World

By contrast, the UK's trade with the Rest of the World is typically in balance or surplus, as per the ONS seasonally adjusted chart for 2015 Q2 in the diagram at the top of this page.  UK exports have been re-orienting away from the EU and towards the Rest of the World since before the millennium, reflecting the fact that the EU is a declining market place in the world, down to 17% of Global GDP and forecast to fall further.  Global markets provide the best prospects for UK trade growth and trade balance.

Insider Advantage ?

It is an oft-repeated claim that membership of the EU gives the UK an essential trade advantage. However, a detailed analysis of UK export figures 1960 - 2012  (undertaken by Michael Burrage for the cross-party think tank Civitas) shows no positive impact on UK trade with other members. Britain's trade with other EU nations accounts for no more of its trade with all leading economies than it did on joining the European Economic Community in 1973; UK exports to non-EU nations Iceland, Norway and Switzerland have increased enormously over the same period.
".. evidence presented above contradicts again and again those who wish to claim that the UK has enjoyed an insider advantages in the Single Market. The growth of UK exports to other founder members was low when compared with UK exports prior to its launch, low when compared with the exports of goods of 27 non-members to the other founder members of the Single Market, and low when compared with the exports of services of 21 non-members to the other founder members. It was also low when compared with UK exports of goods and services to non-member countries. There was therefore no prima facie evidence that the UK enjoyed any insider advantage, and therefore no obvious place to look for it."
"It is similarly hard to accept the idea that there are disadvantages to non-membership, since the exports of goods and services to the EU of so many ‘voiceless’ and ‘powerless’ nations, both developed and less developed, who had never been ‘at the table’ or even ‘in the overflow room’, have grown faster than those of the UK."


Conclusions

It would be wrong to suggest that the UK's trade deficit is entirely due to membership of the EU. The UK has historically suffered from lower productivity, skills levels and investment compared with the likes of France, Germany, Netherlands etc. UK governments have shown themselves quite capable of pursuing damaging policies without assistance from Brussels.

Nor is trade with the EU the fount of all prosperity that it is often portrayed as.  UK exports to the EU contribute less than one tenth to UK GDP - as per calculations above and in line with a 1999 report from the National Institute of Economic and Social Research (NIESR) which looked at how many jobs were linked to trade with the EU.

The myth of "one-in-ten / 3 million jobs at risk" derives from the 1999 NIESR report.  As reported in the Telegraph, Britain in Europe (campaigners for UK to join the Euro) used this report in 2000 to claim that these jobs "depend on the EU".  Dr Martin Weale, the director of the NIESR, was so outraged by this misuse of his study that he called it “pure Goebbels”, and said “In many years of academic research I cannot recall such a wilful distortion of the facts.”  His report had in fact concluded that almost all of these jobs would exist whether Britain were a member of the EU or not.

The political reality is that it will be in everyone's interest to ensure continuity of trade.  If 3m jobs are at risk in the UK, then 5m jobs are at risk in the EU (given the UK's trade deficit with the EU). Furthermore, trade is now incredibly inter-dependent.  For example, the UK manufactures and exports car engines which are often incorporated into German cars subsequently imported to the UK. Complex international supply chains are at the heart of modern commerce.  An abrupt halt to trade between EU and UK would risk a "cardiac arrest" for international trade.

The key question is does trade with the EU have to entail integration in the political structures of the EU ? There are many trade blocks around the world (e.g. NAFTA, ASEAN etc), but only the EU requires political union of its members and removes the right of veto.  Fortunately, membership of the European Union and participation in the Single Market are not one and the same, as we will explore in a subsequent post.






Thursday, 26 November 2015

Cameron Watch - Norway a bad option ?









Recently, our Prime Minister, went out of his way (all the way to Iceland in fact) to disparage the so-called “Norway option”  (Norway is outside the political structure of the EU but has full access to the European Single Market via the European Economic Area (EEA) agreement). 

On return to the UK, the Prime Minister continued his attack on the "Norway" option at a speech to the CBI on 9 November, in which he stated:

...what I think is a very duff argument put about by the Out campaign, which is that it would be easy for Britain to leave Europe and simply sign up to a deal like Norway. I think that would be a bad idea. When you look at the detail of the deal that Norway has, it is not a good deal. 
In previous posts, we have examined how much say Norway has over EU rules, and how much Norway pays for Single Market access.  In this post, I want to examine the "Norway" option as a whole and scrutinise the Prime Ministers claim that Norway is a bad option for Britain.

Prosperity


The first thing to note is that being outside of the EU hasn't done Norway's economy any harm.  Per head of population, Norway is more than twice as wealthy as the UK and exports more to the EU than the UK.  The Legatum Institute has just ranked Norway the most prosperous nation on earth for the 7th year running.

Immigration


One of the claims made by Mr Cameron regarding Norway was "They actually take twice as many per head migrants as we do in this country".

The key point to note is that Norway is subject to the same "Freedom of Movement" provisions as the UK. Norway's immigration rate is not higher than the UK rate because it has different rules (which is what the Prime Minister has sneakily implied !).  

Whenever David Cameron is challenged on his failure to meet his own UK target (net immigration <100,000 per annum), he is quick to point to our improved economic performance as the cause.   Norway is more then twice as prosperous as the UK,  so if Norway has a higher immigration rate, Mr Cameron's logic would appear to be "We dont want to be like Norway, we'll be twice as rich and so get more immigrants".

In fact, there are additional options to manage immigration available to Norway via the EEA agreement.  Articles 112-3 provides a kind of "emergency brake"  to be applied "if  serious economic, societal or environmental difficulties of a sectoral or regional nature arise and are liable to persist".  If the phrase "emergency brake" sounds familiar, it is because it was among the options considered by David Cameron in October 2014 - by the time of his keynote speech on immigration in November 2014 the "emergency brake" idea had been dropped following discussions with Angela Merkel. So in summary, Norway has an "emergency brake" option on immigration, whereas David Cameron was unable to "negotiate" a similar arrangement with his fellow EU leaders.


Other Advantages


Following the Norway option would allow the UK to repatriate powers from the EU in a number of areas.  I'll highlight a few key points:
  • Common Foreign & Security Policy (CFSP) - UK foreign & defence policy is increasingly "out-sourced" to the EU following the Treaty of Lisbon: The European Council (an EU institution) directs the common foreign and security policy (Article_26); UK is required to support this policy "actively and unreservedly" (Article_24 ) ; UK is required to defend the positions of the EU in the UN - the UK's permanent seat on the UN Security Council is increasingly at risk of being usurped by EU (Article_34).
  • Taxation - The EU mandates a minimum VAT rate, as illustrated when the UK lost a European Court of Justice ruling on VAT rates for insulation and energy saving products. The EU charges Custom Duties on all goods imported from outside the EU.
  • Judicial & political freedom  Norway has full judicial independence and is not bound by the rulings of the European Court of Justice.  Norway is also exempt from the EU's Charter of Fundamental Rights.
  • Full self-representation at WTO and other global governing bodies (UNECE, Codex, the OIE, IPPC, IMO, etc.), where Single Market rules increasingly originate.  UK has effectively surrendered its independent voice and veto on these bodies to the EU.

Conclusion


Mr. Cameron would be hard pressed to strike a deal as good as Norway's deal:
  • Norway has a "Trade & Co-operation" relationship with the EU including full Single Market access. 
  • Crucially, Norway has MORE say over the rules governing the Single Market as it has retained its independent voice & veto on the Global bodies where these rules increasingly originate (currently 90% of Single Market rules are covered by Global bodies).
  • The EEA agreement includes provisions for managing immigration not available to the UK.
  • Norway is free from "Political Union" and is independent the EU's Political & Judicial Institutions.  Norway remains a self-governing nation state.


So is Norway the ideal solution for those who want "Trade & Co-operation" but not "Political Union" for the UK ? Well, not quite, e.g. : 

  • The relationship regarding the Single Market is still asymmetrical.  We would shape & influence the rules at a Global level, from where they are passed down to the EU and then eventually on to the UK via the EEA agreement (although there would be nothing stopping the UK implementing the rules earlier where it provides trading advantages).
  • The UK would still be signed up to "Freedom of Movement", although as I hope to discuss in a later post, "Freedom of Movement" is not the key element to managing immigration and the UK would want to retain many aspects of "Freedom of Movement" in any case.

Nevertheless, the Norway option provides at least a minimum benchmark or can also serve as an interim solution (while negotiating the "ideal" solution over a longer period).  Norway is by no means a "bad" option as the Prime Minster called it.  It is in  fact a "Good Start".

That's strike 3 for David Cameron on the Norway option, he is out of the game on this topic !



A fellow blogger has provided links to more info on the "Norway" option here .


Wednesday, 18 November 2015

Cameron Watch - how much does Norway pay ?



Recently, our Prime Minister, went out of his way (all the way to Iceland in fact) to disparage the so-called “Norway option”  (Norway is outside the political structure of the EU but has full access to the European Single Market via the European Economic Area (EEA) agreement).  

In this post, I want to examine this quote from David Cameron:
"Norway actually pays as much per head to the EU as we do ..."
Now it should be noted that the amount spent on EU contributions is a very small proportion of total Government spending (£732 billion in 2014)   – so the key question here is not how much money the UK could or could not save - it is whether David Cameron's claims stand up to scrutiny.

Relative size of UK & Norway 

In comparing Norway’s EU payments to the UK’s contributions to EU budget, the first thing to bear in mind is the relative size of the nations population and economy :
  • UK population = 64.51 million, Gross National Income (GNI) = $2,754 billion.
  • Norway population = 5.136 million,  Gross National Income (GNI) = $529.3 billion.
In other words the UK population is about 12 and a half times bigger than Norway's, the UK economy is just over 5 times bigger than Norway's.

Norway’s EU  Payments:

Norway pays for Single Market access via EFTA.  In 2014, EFTA’s annual budget was approx. 22,360,000 swiss francs of which Norway paid a 55% share, which comes to approx. £8.5 million per.annum (assuming an exchange rate of 1.45 swiss francs to £1). This is just £1.65 per head, or less than the price of 3 mars bars – the price for Single Market access via EFTA is negligible.

Norway also pays for participation in various EU programmes (e.g. Erasmus+, Horizon 2020, Copernicus etc).   You may have seen some stories in the papers (particularly the Guardian) promoting the idea that UK science will lose out on these programmes and funding if the UK were to leave the EU – in fact these programmes are open to non-EU countries, such as Norway, and even including non-European countries such as Israel.  The UK will continue to participate in these programmes regardless of the Referendum outcome – they are a good example of the kind of international collaboration the UK seeks and offer good value for money.  In 2014, Norway’s contribution to these programmes was €306 million =  £255 million (assuming an exchange rate of 1.2 euros to £1).   Over the period 2007-13, Norway received approx. €1 billion in funding back from these programmes, so the net cost of Norways participation in these EU programmes is reduced by on average £120 million per annum.

The EEA Grants form part of the EEA agreement whereby the three EFTA EEA countries provide direct financial aid to the former eastern-bloc countries within the EU – it is worth noting that these grants are paid directly to recipient countries – the money is not filtered through Brussels.  The three countries contribute to the grant scheme according to their size and economic wealth (Norway = 95.8%, Iceland = 3% , Liechtenstein = 1.2%). Of the €993.5 million set aside for the five-year period 2009-14, Norway paid €951.7 million, which over 5 years is an average of £159 million per annum (assuming an exchange rate of 1.2 euros to £1).

Hence, I estimate Norways mandated EU payments for 2014 to be £423 million gross = just over £82 per head gross or alternatively  £303 million net  = just under £59 per head net  (after allowing for funding Norway received back via the EU programme).  Based on the relative size of the UK economy, the UK would pay approx. £2.2 billion gross per annum in the same circumstances (i.e. 5 times as much as Norways gross payments)

Norway also pays "Norway Grants", which are often mistakenly confused with the EEA grants.  Norway has set aside €804 million for the current five-year funding period of “Norway Grants”, which is an average of £134 million per annum.  These grants are purely voluntary (as a foreign policy initiative by Norway) and are not part of the EEA agreement –other EEA countries do not contribute to these grants.   Daniel Hannan relates how when asking Icelandic civil servants why Norway paid these extra grants “two civil servants looked at each other awkwardly and one said: “Because those Norwegian Euro-officials are f***ing crazy!”  


UK contributions to EU

HM Treasury report on the 2014 EU budget indicates that in calendar year 2014, the gross UK contribution was £19.234 billion, before the UK rebate of £4.888 billion, i.e. £14.346 billion gross (after rebate) = £222 per head. In addition, the UK received £4.539 billion back in EU funding (via Common Agricultural Policy, Common Fisheries Policy  and Regional Development funds), leading to a net figure for UK contributions of £9.458 billion net= £147 net per head.  Norway’s net contribution figure per head is less than half this figure.

Comparing Norways payments to UK contributions

Comparing the UK’s contributions with Norways payments is complicated by a number of factors:
  • Norway does not participate in the EU’s Regional Development programme
  • Norway does not participate in the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP)
  • The UK has a unique rebate (primarily to offset its unusually high liability under the Common Agricultural Policy)
Perhaps it would be most straightforward to simply compare what the UK would expect to pay if it followed the “Norway option” with what it contributes to the EU today.  It is reasonable to assume that the current funding the UK receivs from the EU for CAP, CFP and Regional Development would simply be replaced by UK Government funding to the same level - with the advantage that how the funds are spent would be decided locally in the UK.  Hence, the UK could expect to pay  £2.2 billion (UK equivalent to Norway’s gross payments in 2014 based on relative size of the economies) + £4.539 billion (to replace lost EU funding) = £6.739 billion. This is less than half the £14.346 billion gross (after rebate) actually paid by the UK in 2014.  Note that figure does not even count in the funding the UK receives back from the various EU programmes (Horizon 2020, Erasmus + etc) - the UK has historically been a major beneficiary of funding from these programmes. 

Conclusions

The amount spent on EU contributions is a very small proportion of total Government spending   – so even a halving of UK’s contributions is not going to be a decisive factor in the referendum.

However, the above analysis suggests David Cameron’s claims again fail to stand up to scrutiny – Norway appears to pay less than half the UK amount per head - his trustworthiness will be a decisive factor in the EU Referendum.

A number of other plus points for the Norway option have also emerged in this analysis:

  • Participation in EU programmes (Erasmus+, Horizon 2020, Copernicus etc) 
  • Norway is outside of the Common Agricultural Policy (CAP) 
  • Norway is outside of the Common Fisheries Policy (CFP) 
I’m calling this as strike 2 for Mr Cameron on the Norway option.



I've summarised the payment figures for 2014 in table below:

























Related posts:
Norway has no say over the rules ?...
Norway a bad option ?
Keeping the score on The Norway Option...

Foundation of the EU - Supra-national not Inter-national




























In this post,  I will try to briefly highlight the foundation of the EU and in particular the tension between the "Supra- national" EU and British preference for "Inter-national" co-operation (i.e. an "Intergovernmental" approach).  Once again, I have gleaned this primarily from “The Great Deception” written by Christopher Booker and Dr Richard North –  available to download as a PDF here.

An "intergovernmental" organisation is based on self-governing nation states co-operating willingly - the participating nations states remain independent and autonomous.   By contrast, a "supranational" organisation sits above nation-states - powers and decision making are transferred from participating state to the "supranational" organisation.

Post-war International Co-operation

In the aftermath of World War Two, Britain was at the forefront of international co-operation that led to the founding of many "inter-governmental" institutions, including: 
  • United Nations - the successor to the League of Nations, but this time with participation of the USA;
  • World Bank & International Monetary Fund (IMF) - to avoid another financial crash that led to the Depression; 
  • General Agreement on Tariffs and Trade (GATT) - to lower tariffs world-wide and avoid the protectionism that prolonged the Depression and also to promote free trade.  GATT was superseded in 1995 by the World Trade Organisation (WTO), another "intergovernmental" organisation to promote free trade around the globe. 


Britain's Intergovernmental Approach to Europe

Contrary to views commonly held today, Britain also played a leading role in the European arena in the post-war world, pursuing an “Intergovernmental” co-operation and “Free Trade” agenda:
  • The “Council of Europe”, an intergovernmental organisation proposed by Churchill (1946) and brought into existence by the 1949 Treaty of London.  This organisation was by-passed by Monnet in setting-up the European Coal and Steel Community in 1951.  Nevertheless, Britain signed an agreement of ‘association’ with the European Coal and Steel Community in 1954, with a commitment to friendly co-operation.
  • Britain led the creation of the Western European Union (WEU) an "Intergovernmental" organisation and military alliance to provide mutual defence.
  • The Organisation of European Economic Co-operation (OEEC) was formed in 1948 to administer the distribution of Marshall Aid.  At the insistence of Britain, Sweden and Switzerland  this was a strictly ‘Intergovernmental’ organisation, controlled by a ‘Council of Ministers’ making decisions on the basis of unanimity. 
  • Britain & Ludwig Erhard (German Minister of Economics and "Father of the German economic miracle") proposed using the OEEC as the infrastructure for a Free Trade Area Common Market 
  • When this proposal for a Free Trade Area Common Market was rejected, Britain led the creation of the "Intergovernmental" European Free Trade Area (EFTA) – established by the Stockholm Convention in Jan 1960 it comprised 7 countries: Britain, Norway, Sweden, Denmark, Switzerland, Austria & Portugal.
  • Britain promoted intergovernmental co-operation in a wide range of fields.  For example, in civil aviation (where it was a world leader) : Eurocontrol was agreed in 1960 and provided a Europe-wide system of air navigation safety; the Supersonic Transport Aircraft Committee was established which eventually led to the building of Concorde.


Monnet's Supranational Europe

Britain's "Intergovernmental" approach to Europe was an anathema to Monnet, characterised by his verdict on the OEEC "the OEEC’s nothing: it’s only a watered-down British approach to Europe – talk, consultation, action only by unanimity".  At the end of the 1940’s Jean Monnet renewed efforts to establish a “Supranational” United States of Europe based on the model described by Salter - in diametric opposition to Britain's approach.

A hallmark of Monnet's approach was to use a "beneficial crisis" and then advance his ideas via a public advocate.  In spring 1950, French demands regarding West Germany's coal & steel industries were the "beneficial crisis" and Robert Schuman, the French Minister of Foreign Affairs was his advocate.  On 9 May 1950, Schuman made a declaration (prepared by Jean Monnet) proposing integration of the French and German coal and steel industries: 
"Through the consolidation of basic production and the institution of a new High Authority, whose decisions will bind France, Germany and the other countries that join, this proposal represents the first concrete step towards a European federation ...."
The European Coal & Steel Community (ECSC) was founded by the Treaty of Paris in 1951 when The Six members states (France, West Germany, Italy and the 3 Benelux states) handed over control of their steel and coal industries to this new “supranational” organisation.   “Qualified Majority Voting” was used in the Council of Ministers.  Jean Monnet became the first President of the “High Authority”.

Monnet then proposed a ‘Supranational’ European Defence Community (EDC), with a European Army run by a European minister of Defence and Council of Ministers, a common budget and common arms procurement policy.  Rene Pleven (French Prime Minister) was the public advocate, but the initiative met with sustained opposition and eventually failed.  Consequently, Britain led in the creation of the "Intergovernmental" WEU to provide mutual defence.  It is worth noting that from 2000, the WEU’s capabilities were transferred to the EU and the WEU was wound up in 2011 - there have since been fresh moves within the EU to create a Single European Army.


In response to the rejection of the EDC, there was a change of tactics: the language was changed with phrases such as “European Government” and “Federal” being avoided; as exemplified by the Francois Duchene quote at the start of this blog.  Political integration was to now proceed under the guise of economic integration.

Monnet resigned as President of the High Authority and began work on "economic" integration. Paul-Henri Spaak (Belgian Foreign Minister) composed The “Benelux Memorandum” (based on a draft by Monnet) which called for a Common Market including integration of transport, energy, nuclear energy and social legislation.  Tellingly, the phrase “United States of Europe” in the original draft was removed to give more emphasis to the idea of an “economic community”.

Spaak rejected Britain & Ludwig Erhard's suggestion of a Free Trade Area using the existing OEEC governance, as it  ‘offered no prospect of a European political union’.  Instead, the Common Market was implemented as a Customs Union with a common external tariff wall erected against non-members – i.e. focussing on integration within the European Economic Community rather than an expansion of free trade. 

The Common Market treaty was signed in 1957 in Rome.  Although commonly believed to be a purely economic agreement, the Treaty pre-amble includes the declaration to ‘lay the foundations of an ever-closer union among the peoples of Europe’

Subsequent treaties have continued the transfer of powers from the member states to the “Supranational” EU.  Executive power is held by the European Commission, the equivalent to Salter’s “Secretariat”, a body of civil servants who owe loyalty to the EU, not member states.  Most decisions are via Qualified Majority Voting, i.e. national vetoes have been mostly eliminated.   Just as Salter & Monnet envisaged. 


Conclusion

There is a historic difference between the "Supra-national" nature of the EU and Britain's preference for "Inter-national" co-operation, which helps explain why the UK has never felt comfortable inside the EU and why the UK is often seen as the “awkward” member. 

It should also be understood that the EU is something of an anomaly as the only recognised Supranational Union in the world.  By contrast,  the "intergovernmental" organisations created after WW2 are still the dominant global institutions, i.e. UN, NATO (which has been the cornerstone of Europe's defence & security for almost 70 years), IMF & World Bank (which still underpin the world's financial systems) and GATT / WTO, which has been the major force enabling Global trade.  Crucially, the WTO along with a plethora of other "intergovernmental" institutions (e.g. UNECE, ILO, Codex Alimentarus etc) is driving the emerging Global Single Market which has effectively made the EU redundant as a law-maker for the Single Market.

Fundamentally, the choice for Britain in the Referendum is the same as it has been for the last 65 years: 

  • Should Britain "Trade and Co-operate" with nations across the Globe  as a self-governing nation-state ? (i.e. an "Inter-governmental" approach)
  • Should Britain commit to a "Supra-national" EU, where the EU sits above the member states (as a form of Government of Europe) and where the EU represents the member states around the world ?




What is the EU ?



Or rather, this blog will attempt to correct some of the common assumptions made about the  EU, by defining what it is NOT - I will attempt to describe the EU in later posts.


The EU  is not  Europe

 A constant refrain in the media is that the referendum is to decide whether "Britain should leave Europe", whereas in fact the EU does not comprise the whole of Europe.

There are 51 internationally recognized sovereign states with territory located within the common definition of Europe, and all except Belarus, Kazakhstan and Vatican City are members of the Council of Europe,  an "intergovernmental" organisation created by the 1949 Treaty of London.

There are currently 28 member states in the EU.

The EU is not  The Single Market

Similarly, the media tends to confuse the EU with the European Single Market.  

More accurately, the European Economic Area (EEA),  is the European Single Market.  As can be seen in the diagram above, the EEA comprises the 28 member states of the EU and 3 of the European Free Trade Area (EFTA) states (Norway, Iceland & Lichtenstein) - these 3 states have full access to the European Single Market but are outside all the political entanglements of the EU.

Nor is the EEA the only way other European states outside the EU access the European Single Market:
  • Switzerland, the fourth EFTA state, rejected the EEA in a referendum, but has instead negotiated a series of bi-lateral treaties with the EU that provide access to the Single Market whilst remaining outside of the EU.
  • Turkey is inside the EU Customs Union but outside the EU - hence has access to the Single Market for some goods but must adopt the EU's external trade policy.
  • Most other European nations have association agreements with the EU.  In 2014, Ukraine and Moldova signed association agreements with the EU, leaving Belarus as the only one European state that does not access the European Single Market.

The EU is not a Free Trade Bloc

In a free trade bloc, member countries sign a Free Trade Agreement (FTA) to reduce or remove trade barriers  (e.g. import quotas and tariffs) between member countries.  Goods, services, capital and sometimes labour then circulate freely between member countries. Examples are NAFTA in North America, EFTA in Europe and ASEAN in South East Asia. 

A customs union, by contrast, surrounds itself with a common external tariff, and conducts all trade talks on behalf of its member nations.  The EU Customs Union comprises All 28 EU member states plus other states who have joined the Customs Union but are not in the EU (Turkey for example).  In practical terms, being inside the EU Customs Union has following impact on the UK:

  • The EU sets a Common External Tariff for all member states.  In 1973, the UK joined  the European Economic Community (EEC) as it was known then, before becoming the European Union in 1993.  The UK was required to abandon existing trading arrangements with Commonwealth nations and adopt the EEC's high external tariff, resulting in increased prices for UK consumers and reduced trade for Commonwealth partners (Australia and New Zealand being the most heavily affected).  
  • The UK has been unable to negotiate its own free trade deals since 1973.
  • The EU speaks for all member states on world trade bodies (e.g. WTO) - the UK has no independent voice or vote on these increasingly important bodies.

The EU is not an “intergovernmental” organisation like the UN or NATO


There are essentially 2 different forms of international organisation:
  • “Intergovernmental” - where member states co-operate on areas of common interest, but retain an individual veto or opt-out, e.g. UN, Nato.  The Council of Europe works on an entirely intergovernmental basis.
  • “Supranational” – where member states transfer powers to overarching supranational institutions.
The EU evolved from the European Coal & Steel Community (ECSC) a "supranational" organisation created in 1951, whose architects (Monnet & Schuman) rejected the "intergovernmental" model of the Council of Europe.  The EU today exercises power over a whole range of economic and political areas.  Most decisions are made via Qualified Majority Voting (in which the UK has approx. 12% share), increasingly so since the Treaty of Lisbon (signed 2007).

The EU is not what the UK envisaged

It is a commonly-held view that the UK took an isolationist view of international events in the post-war world before finally joining the EEC in 1973 after much foot-dragging and only when the British Empire had faded away.  In fact, the UK (along with America) launched many international organisations which shaped the post-war world and beyond.  In the European arena, the UK was the leading founder of the Council of Europe and European Free Trade Area (EFTA) as well as numerous other intergovernmental initiatives.   

The UK has always envisaged a Europe based on free trade and an “intergovernmental” approach – “Trade and Co-operation” in short.  By contrast, the European Union is based on a Customs Union and transfer of powers to a “supranational” institution – in short, “Political & Economic integration leading to Federal Union”.

The fundamental difference in these approaches helps explain why the UK has never felt comfortable inside the EU and why the UK is seen as the “awkward” member.  Needless to say, it is critically important to understand these differences ahead of the Referendum.

Sunday, 15 November 2015

Origins of the EU - An Old Idea





In this post,  I will try to briefly highlight the origins of the EU.  I cannot take any credit for the information, I have gleaned this primarily from “The Great Deception” written by Christopher Booker and Dr Richard North – a meticulously researched and detailed account of the European project.  I regard this book as essential reading for anyone who wishes make an informed decision at the EU referendum.  This book is available to download as a PDF here.

It is commonly believed that the concept of the European Union developed following World War II.  In fact, the essential ideas of the European Union emerged as a response to the horrors of the Great War, for example: 
·     Federal Europe or “United States of Europe”  based on the Amercian model, e.g.:.Giovanni Agnelli published ‘European Federation or League of Nations’ in 1918, the Pan Europa movement founded in 1922, Aristide Briand (French Prime minister) published ‘Memorandum on a European Federal Union’ in 1930.
·     Coal & Steel Union to transfer industries crucial to waging war from nations to a “higher authority” and as a first step to establishing a “United States of Europe”, e.g.: Louis Loucheur (French Armaments minister 1917/8, Minister of Finance 1925/6); Pan Europa; “International Steel Agreement” brokered in 1925.
·     Customs Union or Common Market as a means to achieving economic integration leading to Federation e.g.: Sir Max Waechter (1924); French economist Charles Gide, supported by Pan Europa (1924); Louis Loucheur (1927).
·     Franco-German Collaboration Aristide Briand & Gustav Stresemann (German Foreign minister) shared the 1926 Nobel Peace prize for their work on the Treaty of Locarno (which guaranteed mutual security for France and German) and championed Franco-German economic collaboration and a “United States of Europe”.

However, it was two close friends & senior officials in the League of Nations, the Frenchman Jean Monnet and his British colleague Arthur Salter, who did most to provide a blueprint for the future European Union:
  • During his term as the League of Nations deputy-secretary general (1920-23), Monnet became frustrated by member states power of veto and became committed to the idea of an entirely new ‘supra-national’ form of government, beyond the control of national governments, politicians or electorates.
  • In 1931, Salter published ‘The United States of Europe’ proposing that the method used to unify Germany in the 19th century should be used to create a United Europe, i.e. by establishing a Zollverein or  ‘common market’, funded by a common tariff on all goods imported from outside with “a political instrument to determine how the distribution [of those funds] should be made”.
  • Salter also proposed an institutional structure based on the League of Nations, with a “Secretariat” as the central source of authority – a permanent body of international civil servantsloyal to the new organisation  (not to the member countries) – essentially government by “Supranational” bureaucracy.
At the heart of these initiatives was an attempt to bind Europe together politically and economically, particularly France & Germany, to avoid another war.  As Churchill put it :
“…the aim of ending the thousand-year strife between France and Germany seemed a supreme object. If only we could weave Gaul and Teuton so closely together economically, socially and morally as to prevent the occasion of new quarrels and make old antagonisms die in the realisation of mutual prosperity and interdependence, Europe would rise again.”
Ultimately, these initiatives failed to prevent World War 2. Nationalist resentment in Germany at the terms imposed by France at Versailles combined with the Wall Street Crash and ensuing Depression provided the platform for Hitler’s rise to power. The world that emerged after World War 2 was a very different one:
  • Britain was at the forefront of international co-operation that led to the founding of many institutions: the United Nations; the World Bank & International Monetary Fund (to avoid another Depression); General Agreement on Tariffs and Trade (GATT) (to the avoid the protectionism that prolonged the Depression).
  • Germany underwent dramatic changes.  Prussian militarism was extinguished by the humiliation of Allied occupation and shame as the Nazi's deeds were fully exposed.  The “Wirtschaftswunder” or "economic miracle" ensured a successful social democracy was established in West Germany.
  • The Cold War dramatically altered the political landscape.  Germany was split in two (East & West); Western European nations were bound together by the common threat of the Soviet Union and NATO was formed; the Soviet Union became a nuclear power in 1949, ushering in the threat of nuclear Armageddon and “Mutually Assured Destruction”.

In the late 1940’s,  Jean Monnet renewed efforts to establish a “Supranational” United States of Europe, establishing the European Coal & Steel Community (ECSC) in 1951, culminating in the European Economic Community (EEC) established by the Treaty of Rome in 1957, based on the blueprint provided by Salter in 1931.  

However, given the changed reality of the post-war world, was this idea still relevant ? If the ECSC and EEC had not been created in the 1950’s, is it really possible to believe that a new European war would have erupted ? Was the EEC any guarantee of peace in the Cold War between the two super-powers (USA & USSR), which reached a near-disastrous climax during the Cuban Missile crisis ? If NATO had not been formed and the USA had returned to its inter-war "isolationism" would peace have been sustained in Europe and the Soviet threat countered simply because of the formation of the ECSC and EEC ?  If the answer to these questions is no, then it begs the ultimate question :  why do we need a "Supranational" United  States of Europe, a government of unelected bureaucrats with power over nation states ?

Tuesday, 10 November 2015

Cameron Watch - Norway has no say over the rules ?


















Recently, our Prime Minister, went out of his way (all the way to Iceland in fact) to disparage the so-called “Norway option”  (Norway is outside the political structure of the EU but has full access to the European Single Market via the European Economic Area (EEA) agreement).  The PM is quoted as saying:
Norway actually pays as much per head to the EU as we do. They actually take twice as many per head migrants as we do in this country but of course they have no seat at the table, no ability to negotiate.
I'm not arguing that all those who want to leave the EU say they want to follow the Norwegian path but some do and I think it's very important in this debate that we are absolutely clear about the consequences of these actions.
Speaking later in Iceland, where he is attending a meeting of the Northern Future Forum, the PM said he wanted the British people to understand what the so-called "Norway option" involved, arguing that "while they pay, they don't have a say - they don't have a seat around the table".
The PM’s behaviour might strike some as overly defensive - he appears to be trying to shut down discussion on the Norway option before a debate has started.  The mainstream media has been typically poor in scrutinising the PM’s claims and provides no useful information.  But the information is “out there” and I hope to show this in a series of posts.

How many EU laws does Norway adopt ?

One of the claims made by the Prime Minister is that Norway “accepts about three quarters of EU rules". 

The first point to note is that only those EU rules marked as EEA relevant are adopted by Norway – in other words Norway is only subject to EU Single Market rules,  (since the EEA is the mechanism by which Norway gains access to the European Single Market).  By contrast, the UK is subject to all EU laws, including those that have nothing to do with access to the European Single Market – so that’s one immediate advantage to the Norway option.

Furthermore, studies have shown that the actual proportion of EU rules applying to the EEA is much less than three-quarters: a Norwegian study suggests less than 10% of all EU laws created in the period 2000-2015 have been adopted by Norway; a formal question in Iceland’s Parliament confirmed a figure of approx. 10%  (Iceland is also part of the EEA agreement).  Perhaps Mr. Cameron should have popped into the Icelandic Parliament on his visit to check his facts.

A comprehensive analysis and explanation by Dr.Richard North shows that (i) the “approx. three-quarters” claim is based on an error in the introduction to a Norwegian Government Report; (ii) the statistics in the body of this Norwegian Government Report suggest 11% of EU laws were applied to the EEA (in line with studies above). 

Dr. North also suggests the only valid measure is to consider only those laws currently in force (i.e. discount laws that have been repealed). Based on this approach and up-to-date statistics he arrives at a figure of 21% - a more conservative figure than the 10%, but one that can be considered as currently definitive.

Does Norway have a say in the EU Single Market rules?

The EEA Agreement is managed via a “two-pillar” institutional framework shared by the EU and the 3 EFTA States (Norway, Iceland & Lichtenstein) who are party to the EEA agreement. The "two-pillar" framework provides multiple contacts between the EU and the 3 EEA / EFTA states at all stages of the legislative process.  Even if one accepts that Norway's role is limited to consultation (and it is far more than that) it cannot be rightly said that Norway has "no say at all" in forming the Single Market rules.

It is true that Britain has voting rights in EU institutions that Norway does not have.  However, this only amount to ~12% Qualified Majority Vote in the EU Council of Ministers, and 73 out of 751 MEP’s in the EU Parliament – Britain can be and is consistently outvoted - and has no veto.  

The Single Market rules are Global rules

However a crucial point that is not widely advertised is that most of these Single Market rules are not made in the EU, as described here.  According to a recent EFTA report, approx. 90% of these Single Market rules are covered by Global bodies.

In a process that has been going on for decades, rules covering trade and market access are increasingly being decided in global bodies (e.g. UNECE, Codex Alimentarius, WTO, ILO, IMO, UNEP etc) and “handed-down” to the EU – these rules are obeyed by countries as far afield as Australia.  In effect we are seeing the emergence of a Global Single Market that is making the EU redundant.

Norway has a seat on these global bodies with an independent voice and a veto and hence is fully engaged in shaping and influencing these rules BEFORE they reach the EU.  The UK does not control its own trade policy and has effectively surrendered its voice and veto on these bodies to the EU – meaning we are not negotiating at the top table (as Mr Cameron might put it) -  as described here.

Also as a consequence of not being in charge of trade policy, the UK is unable to make Free Trade deals with other nations around the world – unlike Norway.

Conclusion

David Cameron’s claims regarding Norway's say over the rules do not stand up to scrutiny. 

He claims Norway is a bad option for Britain, so by extension is he claiming he can do better ?  If so, as a minimum he should ensure  :
  • Only Single Market rules apply to UK in future (~21% of all EU rules in force at present).  
  • UK regains its voice and veto at the real top table (Global bodies).
  • UK regains control of its trade policy and is able to make its own free trade deals.

I'm calling this as strike 1 for David Cameron on the Norway option.



Related posts:
how much does Norway pay ?
Norway a bad option ?
Keeping the score on The Norway Option...