Thursday, 31 March 2016

Economical with the Truth - Academic bias



BSE/Stronger IN have been promoting a report by The Centre for Economic Performance at the London School of Economics and Political Science. 

The report looks at a "pessimistic" scenario where "the UK is not successful in negotiating a new trade agreement with the EU and, therefore, that trade between the UK and the EU following Brexit is governed by World Trade Organisation (WTO) rules".  Such a scenario would imply a serious breakdown in relations and would undoubtedly hit trade, for both the UK and the EU, and around the world.  This outcome is in no-one's interests and for that reason, I do not believe that such a scenario is credible or likely.

The report also looks at an "optimistic" scenario where "the UK (like Norway) obtains full access to the EU single market".  It is this scenario I am interested in and will look at in more detail.

The 'optimistic scenario' / Norway option

The report claims that even the "optimistic" Norway option results in a negative impact to UK GDP, based on a number of assertions and assumptions:

Rules Of Origin (ROO). Norway is not part of the EU Customs Union, which means it is exempt from the EU's Common External Tariff and is also free to negotiate its own free trade deals with third countries (which can mean lower tariffs than the EU). Hence, Norway's exports to the EU need to be certified as to where they originate from to determine whether duties or restrictions apply. Modern finished products are constructed from components sourced from many different countries. Cumulation rules allow products originating from a third country to be further processed or incorporated into a final assembled product and qualify as originating from the final country of assembly.

While ROO does introduce some administrative burden, it should also be noted:  (i) changes coming into force on 1 January 2017, together with revised cumulation arrangements, will significantly reduce the burden. (ii) exports to countries not covered by EU free trade deals (~40% of UK's exports in goods) already deal with ROO.

A study undertaken in 1983 by Koskinen & Matti (“Excess Documentation Costs as a Non-tariff Measure: an Empirical Analysis of the Import Effects of Documentation Costs”) estimated ROO costs under the EFTA-EC Free Trade Agreement (FTA) at between 1.4% and 5.7% of the value of export transactions.  Let us assume an average 3.5% for cost of ROO.  The ONS "Composition of Demand" statistics for 2013 show that UK exports in goods contribute 22.8% to UK GDP (13.4% goods, 9.4% services).  If we exclude the 40% of UK exports to countries not covered by EU free trade deals, we can estimate a Brexit cost for ROO* as 3.5% x 13.4% x 60% of GDP = 0.28% of GDP.

These estimates for cost of ROO above can be considered a worst case:
  • There are many different estimates for the impact of ROO, ranging from 1% (page 99 of Open Europe What If ..? report), 2% (page 5 of HM Treasury report), to 8% (Brenton, P, (2011) “preferential Rules of origin” as quoted by City UK). In practice, if the cost of ROO is higher than the cost of the tariff avoided, exporters will simply pay the tariff (as they do today in relevant cases). Given how low average tariffs are, 3.5% would seem to be an upper limit for ROO impact.
  • Exports to non-EU countries covered by EU free trade agreements (FTAs) already deal with ROO. If these FTA's (including rules of origin and cumulation rules) are simply grand-fathered to an independent UK (as per the convention in international law for continuity of treaties), there would be no additional ROO impact for an independent UK.
  • Hence an optimistic view would be that only the UK's exports in goods to the EU (~40% of UK exports) would face an optimistic 1% ROO impact (as per Open Europe), which provides an estimate = 1% x 13.4% x 40% of GDP = 0.054% of GDP, or about a 1/2000th.

Anti-dumping duties. The EU takes action if a country exports a product to the EU market at lower price than its own its own domestic market - recent action (or inaction) over Chinese steel for example. The EU did pursue anti-dumping measures against Norwegian fish in 2006, withdrawn when the WTO ruled against the EU (Norway of course has a thriving fishing industry outside the Common Fisheries Policy) - but this is the only recent case of EU anti-dumping action taken against a European country.

There is no reason to suppose the EU would pursue anti-dumping measures against UK exports. It does not seem feasible that any UK exporter would or could sustain exporting to the EU at a loss in order to gain a dominant EU market share. This issue seems to be a "red-herring" (one fish species not damaged by the EU's Common Fisheries Policy).

Non-tariff barriers.  Or as they are otherwise known Technical Barriers to trade. These are barriers arising from requirements for products to (i) conform to the export markets trading standards (ii) be assessed as meeting standards in order to pass customs inspection and enter the market. These barriers are overcome via regulatory convergence (having the same trading standards and regulations) and mutual recognition of conformity assessment (so that exporters can undertake assessment in their home country before exporting).  The point of the Single Market is to remove these barriers - the price of which is continuing to comply with all the Single Market regulations.

Bizarrely, the CEP report assumes that the EEA/Norway option would be subject to an arbitrary level of non-tariff barriers (one quarter of the reducible non-tariff barriers observed between the USA and the EU). Norway is in the Single Market (via the EEA agreement) and so follows all the rules of the Single Market. Either following these rules overcomes these technical barriers, or there is no point in the Single Market!

Future trade costs.  The authors also predict an increasing  non-tariff barrier cost over time. They reference an academic paper Méjean and Schwellnus,2009 which analysed French export statistics for the period 1995-2004.  Méjean and Schwellnus concluded that French exports to EU countries reach price convergence 40% faster than French exports to other OECD countries (e.g. USA, Canada).  In theory, this illustrates an efficient Single Market with non-tariff barriers between members states reduced.

It is fairly easy to question the applicability of the Méjean and Schwellnus study to Brexit: (i) the paper states that ~30% of the difference between EU and OECD exports is down to the nature of firms operating in Europe - they tend not to discriminate on price between EU member states as a matter of practice; (ii) the period analysed is the early years of the Single Market - has subsequent globalisation eroded this European single market advantage ? (iii) the study just looks at France, which has historically traded much more with continental countries - would the same analysis yield the same results for the UK, which has much more global trade ? (iv) Other evidence suggests that price convergence is not occurring within the Single Market. See article here.

But the crucial point is that Norway is in the Single Market (via the EEA agreement) so will see the same reduction in non-tariff barriers. Méjean and Schwellnus did not analyse EFTA EEA nations such as Norway - but the CEP report has arbitrarily decided that EFTA EEA will only see half the benefit of reduction in non-tariff barriers that EU EEA states benefit from.  As described above, Norway is following all the rules of the Single Market so will see all the benefits from reduced non-tariff barriers, or there is no point in the Single Market !

Fiscal Transfers - Norways payments. The CEP report attempts to take into account savings made on the UK's contributions to the EU (currently 0.53% of UK GDP), and assumes that the UK adopting the Norway option results in a saving of 17% on current contributions. A more accurate figure would be 50% of current contributions, once the "Norway grants" are excluded (an entirely voluntary foreign aid contribution made by Norway, unrelated to their membership of the EEA). On this basis, the fiscal saving would amount to 50% x 0.53% GDP = 0.27%.

Tariff Liberalisation Outside the EU's customs union, the UK would be free from the EU's common external tariff. On the assumption that the UK removes all tariffs on imports from anywhere in the world, thus stimulating trade, the CEP report conclude a positive impact on UK GDP of 0.3%

Impact on UK Living standards.Whereas CEP arrive at a cost per household of £650 for the "optimistic" Norway option scenario, I arrive at gain per household of £60, based on a correction of their assumptions on non-tariff barriers and Norways EU contributions.

CEP
Me
Trade Costs
-1.37%
-0.28%
Fiscal
+0.09%
+0.27%
Tariff Liberalisation
+0.30%
+0.30%
TOTAL % GDP
-0.98%
+0.29%
Per Household
-£650
+£190
It should be emphasised that these sums do not represent a real change  in household income. The CEP's GDP loss of approx. 1% is equivalent to less than 6 months growth in the UK economy. I doubt that you noticed this change in your household income over the last 6 months.

Long run effects of Brexit 

The CEP report goes on to claim other factors will cause longer term economic impact, stating "The estimates are based on a static trade model that does not account for the dynamic effects of trade on productivity."  These claims also do no stand up to scrutiny:

Foreign Investment. The Norway option retains full single market access, which along with the UK's unique selling points (language; openness to business; legal, financial  & commercial history & expertise) means that there is no reason the UK would be any less attractive for investment.

Migration. Like the CBI before them, CEP assumes that a self-governing UK would choose a "drawbridge up" immigration policy. Polling by British Future suggests that UK public opinion is moderate on immigration and would choose a policy that is in Britain's best economic interests. Current policy provides a strong bias to immigration from the EU over the rest of the world - a balanced approach would widen the pool of available talent and so should provide an immigration policy with increased benefit for the UK economy.

Future Trade deals. CEP raise the spectre of the UK missing out on the EU's coming trade deals: the infamous TTIP deal with USA; and an EU-Japan FTA.  The public is slowly becoming aware of just how poor the EU is at trade. Any EU FTA requires ratification by all 28 member states, meaning the deals typically end up accommodating all 28 states protectionist interests. The EU also insists on mixing political aims with trade policy. The consequence is FTA's that take forever to agree and are watered down when they finally arrive.

The USA is historically the UK's most significant trading partner and it is highly probable an independent UK would have had an FTA with the USA decades ago.  Some 43 years after the UK abandoned its Commonwealth trading links to join the Common Market/EEC, we are still waiting for the EU to establish FTA's with our main Commonwealth allies. Freedom to strike our own FTA's is one of the strongest reasons for Brexit.

Trade between EU nations. The CEP report references a 2008 paper that suggests EU members trade more with other EU members than they do with EFTA states. From this, they extrapolate that Britain's trade with the EU would become more like EFTA's. A facile argument and easily countered - Norway & Switzerlands exports per head to the EU are 4-5 times as much as the UK's - if Britain became more like EFTA states in that respect, Brexit would be a bonanza.

Integration & Productivity growth. The most far-fetched claim though is that political integration within the EU brings additional economic benefits.  The authors quote one of their own papers suggesting that regions in Finland, Sweden and Austria had seen greater productivity growth since leaving EFTA to join the EU, compared with regions in Norway, which remained in EFTA. Note however that the data studied only covers the period 1995-2001, i.e. prior to the prolonged downturn in economic activity in the EU.

And which region had seen the greatest productivity growth in this period ? That would be Oslo, the capital of Norway. The other regions of Norway are dominated by the already productive and profitable oil/gas industry and Norways thriving agriculture / fishing industries (unencumbered by the EU's Common Agricultural Policy & Common Fisheries Policy).  Bear in mind also that the EU has been the slowest growing region in the world economy for the last 2 decades and the EU's best performers tend to be the least integrated states (e.g. UK, Sweden).  The whole argument for political integration driving economic growth is entirely unconvincing.

Conclusion

David Cameron has consistently tried to portray the Norway option in a negative light - precisely because it provides a viable "soft exit" from the European Union that essentially de-risks Brexit. So an academic research paper  purporting to show that the Norway option would be detrimental to the UK economy matters. The CEP report is based on some alarming fallacies, (particularly regarding non-tariff barriers) and on highly dubious speculation about the UK's economic performance post-Brexit. In truth, it would be just as easy to paint an entirely rosier economic counter-factual for Brexit (subject for a future post perhaps).

It can be argued that even the CEP's estimate of 1% loss of GDP is neither here nor there when considering democracy & self-government.  That is certainly my view.  However, this sort of economic calculation can have a psychological impact on voters, as suggested in the Guardian recently - even a small difference one way or the other may swing the vote.

The LSE and the CEP are well-known supporters of European political integration, based on the idea that more integration must always mean more economic benefit.  I have found many pro-EU supporters hold this as an article of faith and tend to argue as if this is an absolute truth. The problem is, the same thinking underpinned the Single Currency project. Milton Friedman's warning in 1997 that the EU did not constitute an "optimal currency area" seems especially prescient now.

It seems to me that the assumption that integration is always good is the starting point for much academic thinking on both economics and politics. This CEP/LSE Brexit report (and others they have produced on Brexit) appears to fall into this category and tends to look for evidence supporting this case - i.e. confirmation bias.  The referendum poses the fundamental question of who governs us - and that is too important a question to be coloured by an academic bias in favour of political and economic integration.

*Updated on 11th April with revised ROO costs (to exclude exports in services)

Tuesday, 22 March 2016

Economical with the truth - Grocery Politics




I believe the EU Referendum is fundamentally about one primary question - who governs ? To my mind there cannot be a more profound democratic choice.  In practice much of the Referendum campaign has been reduced to debating if Brexit it will result in higher/lower prices, or make the country richer/poorer - reducing democracy to mere "grocery politics".

One of the main peddlers of this "grocery politics" approach have been the "Britain Stronger in Europe" organisation, headed up by someone who should know his groceries - the chairman of Ocado and former chairman of Marks & Spencers, Lord Stuart Rose.

The  "Britain Stronger in Europe" (BSE) organisation had an inauspicious launch last October, with their initials provoking much mirth with allusions to "mad cow disease".  During a Sky News interview Rose was unable to correctly recall their name:  “Stay in Britain, Better in Britain campaign” ? “The Better in Britain Campaign” ? “Better Stay in Britain campaign” ?  All of which sounded more like “Believe in Britain”, which is UKIP's slogan.  BSE now prefer the title "Stronger IN".

In a newspaper interview last October, Rose stated: "Nothing is going to happen if we come out of Europe in the first five years" and “I personally would be very disappointed if there was a fear campaign. I wouldn’t want to be associated with it and you won’t hear that from me." That now seems a very long time ago.

Claims for EU membership benefit: £3000 per annum

It didn't take long before Rose was peddling a CBI report that claimed to show an overall benefit to each UK household of  £3,000 due to EU membership (the clear implication being that leaving the EU would mean an equivalent loss).  This is based on an estimate that EU membership has provided an overall benefit to UK GDP of 4-5%.

The figure of £3,000 is arrived at by taking annual UK GDP (approx. £1.8 trillion), assume 5% has accrued from EU membership (i.e. £90 billion) and dividing by the number of UK households (approx. 30 million) = £3,000.  Its a bit of a con to suggest that each household has an extra £3,000 as a result of 40+ years membership of the EU. In 2015 the UK economy grew by 2.2% - did you notice the extra £1,320 per household ? In 2014 the UK economy grew by 2.9%, making growth of 5.1% over the last 2 years - did you notice the extra £3,000 per household over the last 2 years ? Me neither.

On inspection, the CBI's document proves very superficial. It is not an original analysis, but simply a selective review of other estimates (discounting many of the estimates which suggest a net gain from Brexit), from which they derive a range of 1% to 9.5% of GDP for overall benefits of EU membership.

Most of the benefits listed do not relate to EU membership, but rather to participation in the Single Market, i.e. elimination of tariff and non-tariff barriers, productivity gains from Single Market competition etc. This is part of an ongoing strategy to conflate EU membership with participation in the Single Market. As I have often noted, the sensible approach to Brexit is to Leave the EU, keep the Single Market.

Another major benefit listed is Foreign Direct Investment, which is again linked to the Single Market rather than EU membership. Investment into the UK is also a function of many other non-EU factors - the UK's pre-eminence in services industry, its strong legal & commercial history, the English language advantage and an open approach to business.

Immigration is also listed as a significant benefit to the UK economy. There is general consensus that immigration to fill skill shortages is an economic positive.  Even those advocating leaving the EU to control immigration are only talking about limiting the numbers of unskilled low-wage immigrants, not stopping all immigration. Whether large-scale immigration of low-wage unskilled workers is an overall economic benefit or cost remains a contentious point. As Martin Wolf argues in the Financial Times, "one's assessment of the desirability of sizeable immigration is a matter more of values than of economics."

Even supposing the claims regarding economic benefit from mass immigration are true, continued membership of the EU is not the only way to achieve this immigration ! (as figures for UK non-EU immigration show). It can be argued that adopting a level playing field for immigration, rather than the current system which favours EU immigration over the rest of the world (including commonwealth allies), is more likely to achieve the best UK economic outcome. In short, Vote Leave for a global immigration policy.

The CBI report suggests that approx. 1/3 of their estimated 4-5% overall net gain arises from the Single Market, which is roughly in line with the EU commission's own estimate of ~2% overall gains from the Single Market.  Interestingly, the CBI report has approx. 2/3 of their estimated 4-5% net gain arising from other factors, e.g. migration and participation in global value chains, neither of which would seem predicated on  EU membership.

Lord Rose and BSE were accused of a "scandalous misuse of data" over the CBI report when appearing before the Treasury Select Committee. It was at the same appearance that Rose infamously agreed that controlling low-wage unskilled immigration could see increases in wages for low-skilled workers in the UK, before adding "but that is not necessarily a good thing".

BSE & CBI - economical with the truth

Many of the same economic arguments were advanced by the CBI in 2002/3, with prophecies of economic disaster should the UK not adopt the Euro.  In the 1980's, the CBI enthusiastically campaigned for UK membership of the Exchange Rate Mechanism (ERM). The resultant deep recession was only escaped when Britain was ejected from the ERM in 1992. In fact, the CBI have a long record of supporting the wrong economic decisions, stretching back to their support for the Gold standard in the Great Depression.

BSE/Stronger IN and CBI are blindly repeating many of the old pro-Euro arguments - the UK would be isolated and face huge economic impact if it does not follow the path of EU integration. As the common riposte goes "wrong then, wrong now".

BSE/Stronger IN regularly quote the CBI as the "voice of business".  The reality seems to be somewhat different:

  • The CBI does not declare how many ‘direct’ or ‘indirect’ members it has.  In 1999, the CBI was forced to admit it had just 2,037 direct members (CBI, July 1999).  
  • The CBI have form on this behaviour. During the euro debate, the CBI claimed three-quarters of CBI members supported scrapping the pound (Observer, 18 July 1999).  ICM polling found that British businesses were opposed to euro entry by 63% to 32% and that 64% of the CBI’s own members were opposed to the single currency (BBC News, 31 March 1999). 
  • It has been reported that between 2009 and 2015, the CBI received £955,484 from the European Commission, about 12% of the CBI’s retained income.

When it comes to economics, BSE/Stronger IN are being economical with the truth.  Their case for Remain seems to rest entirely on exaggerated financial claims - much like the failed Euro campaign 15 years ago.  Their claims pre-suppose that Brexit results in 
- (i) the erection of trade barriers (which would damage the global economy) and
- (ii) an economic loss from a future UK immigration policy (whereas adopting a non-discriminatory balanced global immigration policy could actually provide increased benefit).


Conclusion

The continued use of "Grocery politics" by the Remain side is becoming counter-productive, with the public becoming increasingly immune to the wild scare stories.

The Leave side are also guilty of "grocery politics" in claims of savings to be made from our EU contributions.  In practice, much of the money will still need to be spent to continue farming, fishing and regional subsidies as well as participation in programs (Single Sky, Horizon 2020, Erasmus+ etc.). A reasonable analogy is Norways payments  (about half the UK level, and NOT to Brussels).

It really is time we dismissed this "grocery politics" so that we can address the primary question: who governs ?

Wednesday, 9 March 2016

Letters to the Press



Having dropped his charade of being neutral over the EU Referendum, and despite his failure to achieve a meaningful and legally binding reform package, David Cameron is now campaigning to convince the UK public to vote Remain.

The shallowness of this position has been exposed by many (not least by Andrew Neil on the Daily Politics). Only a few short weeks ago David Cameron "ruled nothing out" while he was seeking agreement on a minor change to in-work benefits. Yet we are now being told that to consider leaving the EU is to invite the direst consequences, as if the still reversible "emergency brake" on benefits has radically altered the equation.

Having failed failed with his "renegotiate and reform" strategy, Cameron has reverted to a more familiar approach of "Project Fear" and is essentially running an anti-Brexit campaign (an apt description provided by blogger LostLeonardo).   Prime examples of this strategy are letters to the newspapers signed by establishment figures.

Dodgy Letter from Business Leaders. 

In an attempt to kick-start the Remain campaign, Baroness Rock (a personal friend of George Osborne) arranged for a letter to be signed by 198 Business Leaders. Cameron has had to defend himself against accusations he pressured FTSE 100 companies into signing the letter. Original expectations were that the great majority (80) of  FTSE 100 firms would sign, but ultimately almost 2/3 of FTSE 100 firms declined to support the Prime Minister.

It has also been noted that the 36 FTSE 100 companies who did sign the letter spent €21.3 million lobbying the EU and received €120.9 million in grants from the European Commission between 2007 and 2014. Many of the business signatories also campaigned to join the euro in 2002, with predictions then of impending doom if the UK did not join the Euro. Many are closely associated with David Cameron, as pointed out by Quentin Letts

Neither do the small business signatories of the letter convince, reported to include: a former Miss Normandy who runs a green foods firm from a single vending machine in East London; a Belgian owner of a Welsh chocolate shop; two company bosses in the Spanish and Portuguese Chambers of Commerce; two firms which teach English to French people and offer translation services; a pub landlord who was unaware how his name had been used and who does not support Cameron's reform deal; the managing director of Wiltshire-based Sales and Coaching Solutions, Alison Edgar, who said she had no idea why she signed the letter.

But there are also many business voices who counter Cameron's narrative.  JCB, Tate and Lyle, BPI, Lloyds Banking group chairman Lord Blackwell, amongst others, had already declared for Brexit. 200 small business firm leaders and entrepenuers have written their own letter calling for Brexit. Jamie Murray Wells, entrepreneur and founder of Glasses Direct writes that he does not see the EU as "value for money". Entrepreneur, investor, and chairman of Burnbrae, Jim Mellon has advised Britain should leave the EU before the inevitable Eurozone meltdown. 

Perhaps the most notable pro-Brexit business voice to date is John Longworth, who stated that the UK's long-term prospects would be "brighter" outside the EU. Following pressure from No.10 (via Daniel Korski), he has resigned his position as head of the British Chambers of Commerce and is now free to speak out on the EU Referendum. Writing in the Times, Longworth  accuses the government of following a clearly partisan line in promulgating a "patently untrue" message regarding Brexit. He states how he had "always considered that the best place for Britain to be was inside a reformed EU" but in the light of experience, detailed investigation and Cameron's failure to secure meaningful reform he has concluded "We will have a much brighter future if we leave, but we must make this move now, before it is too late."

The heart of Cameron's case is that EU membership gives the UK a vote over the rules.  In practice, the UK's 12% majority vote in the EU council and 9% of seats in the EU parliament are both inconsequential and irrelevant. The unelected EU commission hold sole power to propose legislation and approve amendments and much of the commissions legislative activity takes place in secret meetings, dominated by corporate lobbying interests.  No wonder the EU is supported by the corporate elites and much less so by entrepreneurs and small business.

The simple fact is that EU membership is not required in order to participate in the single market. As another business leader JD Wetherspoon founder Tim Martin told Sky's Ian King - Switzerland and Norway thrive outside the EU and so can the UK. And as discussed in a previous post, Norway has more democratic influence over single market rules than the UK by virtue of  (i) an independent voice & vote in international organisations that form the regulations and (ii) the EEA agreement providing consultation at the early (lobbying) stage of the EU legislative process and a right of reservation or veto (EEA agreement article 102) on the final EU legislation.

Dodgy Letter from former Defence chiefs.  

Another dodgy letter was orchestrated by Government officials claiming EU membership protected the UK from grave security challenges. One of the 13 signatories, Lord Bramall, said that he had been presented with the letter as a 'fait accompli'. No. 10 had to apologise for wrongly including General Sir Michael Rose in the list, who went on to state that the EU's erosion of UK sovereignty was a major threat to UK security.

Other senior defence personnel, both serving and retired, have criticised the idea that UK security is reliant on EU membership. Rear Admiral Chris Parry argues that “Nato (and Nato alone) provides the collective guarantees that our island nation needs".  Former Army Commander Richard Kemp declares that Brexit would strengthen national security.  Not so much "safer in" as "safer independent and collaborating via NATO."


A vote to Remain will inevitably see increased pressure for a single EU state with a single defence force. Following the activation of the Mutual Defence Clause (article 42) in the wake of the Paris terrorist attacks, the European Parliament recently approved a multi-party resolution  that "Considers the activation of the mutual assistance clause a unique opportunity to establish the grounds for a strong and sustainable European Defence Union". Another classic use of a "beneficial crisis".

If instead we believe that UK security is best served by retaining an independent UK military and intelligence capability, co-operating with allies in both Europe and the wider world (via NATO, Five Eyes intelligence sharing etc) then Leave is the only safe option.

Dodgy Letter from Farmers.  

Finally, we have a letter from the National Farmers Union sent to the Times backing EU membership.  The use of the phrase "We’d pay, but have no say" has No. 10's fingerprints all over it.

As with single market regulations, agricultural standards are set by international organisations, not the EU.  The Codex Commission, International Plant Protection Convention (IPPC) and the Office International des Epizooties (OIE) are organisations recognised by the WTO Sanitary and Phytosanitary (SPS) Agreement.  UNECE and the OECD are also involved in setting agricultural standards. The truth is, an independent UK with an independent voice and vote in these organisations will provide more say over agricultural standards.

As for payments, it is patently clear that the UK has been making significant payments to CAP over decades, subsidising European farmers and receiving back much less in subsidies to UK farmers. To add injury to insult, the UK has been fined for completing the complicated CAP paperwork incorrectly ! Post-Brexit, the UK government would  pay equivalent subsidies direct to UK farmers and still have money over compared with current CAP contributions.

The major anxiety raised by the NFU's letter is the continuance of trade in agriculture following Brexit. This can be readily achieved by: (i) maintaining regulatory convergence, based on the global regulations; (ii) an agreement on tariffs, which is very much in the EU's interests given that the UK imports 3 times as much agricultural products from the EU as it exports to the EU.

A counterpoint to the letter is provided by Farmers for Britain, who view Brexit as a potential leap into the light for UK agriculture.  Former environment minister Owen Paterson has made the case that UK agriculture would be better off outside the EU.  These both paint a positive vision for UK agriculture using the subsidies to more productive ends.  By adopting policies tailored to national and regional requirements of UK agriculture and environment (rather than a one-size-fits-all pan-european scheme) food production and environmental protection (especially flood prevention) would be increased.

The Times has since carried a letter from Charlie Flindt of Alresford that provides a blunt riposte to the NFU's claims to speak for the farming industry (see image at top of this post). His voice and the voice of Farmers for Britain sounds far more authentic to me than that of the NFU.

Dodgy Letter from Scientists

When I first wrote this post, I thought to myself - there's bound to be a letter to the press from scientists next. For much of the last year, there has been a media campaign to convince us that UK science is critically dependent on EU membership.  Sure enough, on March 9th, 150 scientists wrote a letter to the Times proclaiming that “leaving the EU would be a disaster for UK science” , which repeats familiar arguments in stating :
“The EU has boosted UK science in two crucial ways … increased funding …. we now recruit many of our best researchers from continental Europe, including younger ones who have obtained EU grants.”
The EU funding is of course simply our own contributions being returned to us via EU programs such as Horizon 2020. Outside the EU the same money could be directed to scientific research, but in a manner of our own choosing. Similarly, the Erasmus+ program that provides EU grants to students/researchers. These programs are open to non-EU countries (e.g. Norway, Switzerland, Israel etc). It should also be borne in mind that this EU funding amounts to a paltry 2.3% of UK Higher Education spending

The argument around recruiting young researchers is based on the assumption that immigration policy post-Brexit would restrict visas on the same basis as non-EU researchers, i.e. a minimum salary requirement of just over £20,000 pa. This policy was implemented by the UK Government for non-EU researchers in its increasingly desperate attempts to meet its aspiration for immigration in the 10,000s.  In fact, the comments I have seen regarding research scientists (Eu or non-EU) is “but that's the type of immigrants we want !”.

To me, this highlights how our current immigration system is unbalanced and discriminates against non-EU talent. Even UKIP's policy (which may well not represent majority UK opinion) is to limit immigration of low-wage, unskilled labour from the EU, but attract the best talent from the whole world (not discriminating against non-EU states), particularly in fields of Science, Technology, Engineering and Medicine (STEM).  The salary requirement could simply be dropped, or alternatively the education establishments could meet the salary requirement, which would also mean that UK talent is not so easily lured away by prospects of better pay abroad or from alternative careers.

Of course such a letter carries “prestige” when it carries names such as Stephen Hawking.  But it should be borne in mind that Hawkings own politics are bound to colour his views on the EU – he is a long-standing "progresssive left-winger" and last year he publicly endorsed Ed Milliband - i.e. he would not be likely to take a eurosceptic view.

It should also be noted that there are Scientists who take a contrary view. The group “Scientists for Britain” were recently represented by Professor Angus Dalgleish on Newsnight when debating the letter  - as can be seen on this youtube clip.  They have also issued a full rebuttal of the letter written to the Times.  The rebuttal is well worth reading and can be found here.

Conclusion

Cameron's orchestrated letters to the press and the responses to them show up an interesting contrast:
  • on the one hand we have a small elite of corporate bosses and "chums of Cameron & Osborne" - in short the lobbying community - telling us that life beyond the EU is simply not possible for Britain. 
  • on the other we have entrepreneurs, small businessmen, owners of established UK export companies, farmers who want to revive UK agriculture and the rural economy and the leader of Britains small business organisation willing to sacrifice his job and position - in short the community of doers - who visualise a brighter future for Britain.
I know who I would listen to.


Friday, 4 March 2016

Cameron Watch - Dodgy Dave's Dossier



As if to cement his reputation as the "heir to Blair", David Cameron is publishing his own dodgy dossier on the options for the UK if we leave the EU.

Tony Blair published a dodgy dossier on Iraq in Feb. 2003 which suggested Iraq could deploy biological weapons within 45 minutes. Blair's reputation suffered irreparable damage and he attracted monikers such as "Tony B. Liar" and "Phony Tony". The full truth behind the Iraq war is still to emerge as the Chilcot enquiry meanders on some 13 years after publication of the Iraq dossier.

I only hope that it does not take 13 years for the public to uncover the full truth behind Cameron's deceptions on the EU, which have resulted in Cameron acquiring the moniker "Dodgy Dave".

Released against a background of "Project Fear" and some dodgy campaigning tactics from Cameron's government, you will be surprised and amazed to learn that the Government dossier concludes "no existing model outside the EU comes close to providing the same balance of advantages and influence". Let's have a closer look and see if that claim stands up.

Dodgy claims: UK's special status

The dossier claims that the UK now has a "special status" within the EU, courtesy of the opt-outs it has secured over the years and Cameron's "reforms" (sic). The description of this special status is far removed from reality:
  • "sovereign nation".  The UK Prime Minister begging round Europe for a minor tweak to the UK benefits system ? Far short of full self-government for me.
  • "acting in partnership with the other Member States". International co-operation requires the supremacy of the Brussels court, commission and parliament ? Sounds more like the UK is subordinate to Brussels. 
  • "full voting rights"  8% of the vote (12% by population) in the EU council and 9% of EU Parliament ? Records dating back to 1996 show that the UK has failed to block a single measure it opposed in the EU council.
  • "a full voice at the table and a full say over the rules of the Single Market". Except that the EU is the wrong table - it doesn't make the single market rules. Norway (outside the EU) has more say over Single Market rules, as described by LeaveHQ. 
The dossier makes great play of Cameron's "reforms":
- Emergency brake on benefits (which could still be quashed by the EU parliament).
- Greater power for Parliament via the "red card" proposal (provided 14 other national parliaments agree)
- UK opt-out from ever-closer union and protection as a non-euro zone state (subject to a future treaty change that may never happen)

These reforms do not offer the reform promised or needed. They fail to repatriate a single power or reverse any aspect of the Lisbon treaty - the treaty described by Cameron in 2009  as passing too much power from London to Brussels.  Most importantly the deal is not legally binding, recently confirmed again by arch-federalist Andrew Duff, as explained by EU Referendum.

Even if we assume Cameron's opt-out from ever closer union had any validity, then it simply highlights that the UK does not really fit inside this Union. Cameron seems to determined to keep us in a club where we pay the fees, follow the rules, but do not participate in most of the activities and whose aims we do not share. Many, including other members of the EU club, might say we should join a different club.

It also raises questions about our future in this club.  Only 2 nations, the UK and Denmark have opt-outs from the Euro.  So when 26 states are in a Euro denominated federal union, what exactly is the status of Britain ? A half-integrated Britain on the periphery of the EU will be faced with the uncomfortable choice of isolation within the EU or further integration. It makes far more sense for the UK to make this choice now - wholeheartedly commit to the Euro and federal union or part as amicably as possible from the EU in recognition that we have different destinies.

Dodgy claims:  Brexit dis-advantages

Inevitably, the dossier contains further unfounded contributions to "Project Fear".

Status of UK ex-pats in EU. The dossier opines that the UK will "almost certainly" have to offer reciprocal rights to EU ex-pats in the UK.  Actually this point is not in dispute. UK ex-pats in the EU and EU ex-pats in the UK will have "acquired rights" a well founded principle of international law. Following a gaffe by Mark Reckless, the UKIP candidate in the Rochester and Strood by-election of 2014, Nigel Farage confirmed "there is no confusion. Anybody who legally came to Britain will be allowed to remain".   Is there any reason to doubt the EU will not reciprocate ?

Northern Ireland. The UK and the Republic of Ireland have shared a common travel area since the 1920's (shortly after Ireland declared independence), which has survived the Irish Civil War, the Anglo-Irish trade war, World War 2 (when Ireland was neutral), and the troubles in Northern Ireland. The dossier claims Brexit puts the arrangement at risk. However, the example set by Norway and Iceland (both outside the EU) together with Sweden, Denmark & Finland (EU countries) suggests otherwise.  These Scandinavian nations form the Nordic Union - a passport free travel zone that pre-dates the EU's own version (Schengen).

EU's existing Free Trade Agreements.  The dossier states that the EU's free trade agreements (FTA's) with 53 nations will be lost to the UK upon Brexit. However, this is to ignore the principle in international law of "continuity of treaties". In 1993 when Czechoslovakia split into the Czech Republic and Slovakia, the successor states simply continued the treaties inherited from the former Czechoslovakia. You can find more detail on this here. In short, the claim that the UK will lose access to the EU's trade agreements is flat out wrong.

Exit process. The dossier also refers to a previous white paper which covered the withdrawal process, describing the process as "far from straightforward" and complaining that Article 50 has never been used before.  While the whole process of untangling 40+ years of  EU integration will be lengthy and complex, the actual process of withdrawing from the treaties does not need to be.  As covered in a previous post, FUD-Fight: Exit holds no fear, the EU's own treaty commitments plus international & WTO law provide security.  If you believe that the EU honours treaty commitments and respects international law, it will be safe to Leave. If not, I would argue it is not safe to Remain.

Dodgy claims:  EU advantages

The dossier repeats the discredited claim that national security depends on continued membership of the EU.  However, the premise ignores the blindingly obvious point that political union is not a pre-requisite for international co-operation and collaboration. The UK will remain a member of NATO, the Five Eyes shared intelligence community, OSCE (Organization for Security and Co-operation in Europe) etc.

The dossier refers to the European Arrest Warrant and the Schengen Information System II (SIS II) as crucial to our defence against terrorism and international crime. However, the dossier also concedes that non-EU Norway has access to these systems. Political union is not a pre-requisite.

Dubious claims are made for the achievements of EU diplomacy.  If anything, the need to agree a common position inhibits initiatives from "coalitions of the willing" and results in a weakened and compromised response.  Not mentioned is that courtesy of the Lisbon treaty, the UK no longer has its own Foreign and Defence policy, and that the UK role in international organisations has been reduced to that of a Brussels proxy, courtesy of Article 34.

In practice, the claims for EU advantage always come down to one thing - trade via the single market. Hence the alternatives to EU membership are primarily concerned with the UK's future trading relationship. Since this is already a lengthy post, I will defer detailed discussions on the trading options for another post.

A Positive Note

Matthew Hancock was dispatched by the Government to defend the dossier on TV's "The Politics Show". Hancock was totally skewered by Andrew Neil as can be seen on youTube here.  A number of points were covered, including the "how many EU laws does Norway adopt" meme.  Neil also pointed out that 47 of the 48 nations that make up the European continent have tariff free access to the Single Market, i.e. all except the Stalinist dictatorship, Belarus. Neil then asks Hancock whether the EU, our friends and allies, would really bracket us with Belarus in denying the UK a trade agreement ? Hancock is forced to reply "of course not".  A positive note to end on.