the north monographs - campaign for an...

The North Monographs:

Part One Monographs 1-4

A very brief digest by Mike Stallard (MA)

That spirit upon whose weal depends and rests

The lives of many. The cess of majesty

Dies not alone, but like a gulf doth draw

What's near with it. It is a massy wheel

Fixed on the summit of the highest mount,

To whose huge spokes ten thousand lesser things

Are mortised and adjoin'd, which, when it falls,

Each small annexment, petty consequence,

Attends the boisterous ruin.

Hamlet – Act III Scene III.

1/17 The North Monographs: Part One Monographs 1-5

Dr Richard NorthHe is Britain's leading expert on the EU. His published works include “The Great Deception” and also “The Market Solution: Flexcit: Flexible Exit and Continuous Development.” He is now engaged in writing several monographs which are all available free on http://www.eureferendum.com/This is a short digest of each of the four monographs. The full texts are well recommended and are to be found on the website.1


http://www.eureferendum.com/

Monograph 1: Single Market participation and free movement of persons.

• Contrary to claims by the Commission, including Donald Tusk and Angela Merkel, freedom of movement provisions are negotiable.

A legal base within the EEA Agreement exists for a settlement. After the Dano Case the ECJ declared that the treaties and secondary legislation had "qualified and limited" freedom of movement. Articles 112 and 113 of the EEA agreement open the door to “safeguard measures” and negotiations. On 10 March 1995, the EEA Council recognised that had "a very small inhabitable area of rural character with an unusually high percentage of non-national residents and employees. Moreover, it acknowledged the vital interest of Liechtenstein to maintain its own national identity". It thus concluded that the situation "might justify the taking of safeguard measures by Liechtenstein as provided for in Article 112 of the EEA Agreement". Under the current arrangement, Liechtenstein issues a limited number (less than 100) of residence permits for economically active persons and a very much smaller number for economically non-active persons.

It matters not that Liechtenstein is a micro-state. It is a fully-fledged contracting party within the terms of the EEA Agreement. What applies to one legally can apply to any or all. Liechtenstein is an EFTA State within the EEA.

What exactly are “safeguard measures”? These are actually much vaguer than the name suggests and also much more common. Details are in the original document. They are not a barrier to continued immigration control in Liechtenstein.

The sheer size of Liechtenstein, which is not much bigger than a provincial town, is not a barrier either because Switzerland was also granted immigration control in 1994 under Protocol 15 of the EEA Agreement.1. What is remarkable is the way that Article 112 is entirely dynamic, being invoked by Iceland and praised by Martin Schultz.2

• There is a possibility that other members states could block the transition of the UK from EU member of the EEA to Efta member – assuming that the UK was able to rejoin Efta.

So far, we have taken our advice from the Efta Secretariat on this, which takes the view that transitional arrangements are nowhere set out in the EEA Agreement, and will thus have to be settled politically. The evidence for this rests with the EEA Agreement of 1992, when Austria, Finland, Sweden and Switzerland were also members of Efta, becoming members of the EEA by

1 It is a matter of record that, after a referendum, the Swiss government was unable to ratify the EEA Agreement and its name was removed from Protocol 15. Had Switzerland not failed to ratify, the likelihood is that both countries would currently enjoy exclusion from freedom of movement. Certainly, unilateral safeguard measures are currently being sought by the Federal Government as a resolution to the 2014 referendum on limiting immigration.22

2 On 15 December 1995, via Regulation No 2907/95</a>, the Commission invoked Article 112 on its own account, making the release for free circulation of salmon of Norwegian origin conditional upon observance of a floor price.


Vaduz Castle, residence of the Royal Family of Liechtenstein

virtue of their Efta membership as they joined the EU. There was, therefore no issue to deal with on transition. Switching the names from one pillar to the other was dealt with as a minor administrative adjustment.

One might take it that, in view of the positive response from Schultz to the Swiss proposal to introduce unilateral safeguard measures, and the recent statement by French finance minister Michel Sapin, declaring that everything will be on the table in the future talks with the UK, including freedom of movement, there may be some political support for a seamless transition.

• But imposition of controls, by itself – enabled by leaving the EU - does not, in itself, bring immigration under control: illegal immigrants can melt into their own resident communities and disappear.

Those who hold that we must abolish unrestricted freedom of movement need to understand that imposition of controls, does not, in itself, bring immigration under control. Enforcement of immigration controls and a substantial raft of other measures will be required.

• The initial exit settlement is only an interim measure, adopted for the purpose of easing our rapid exit from the EU.

And this is a temporary settlement. If the initial exit settlement is only an interim measure, adopted for the purpose of easing our rapid exit from the EU, there is an argument for accepting a sub-optimal settlement if no other outcome is available. Once we are no longer members, it will be possible to work on a longer-term settlement which deals more satisfactorily with the freedom of movement provisions.

• What the UK needs to do now:

A fully worked-up case must be made for restrictions, using the Article 112 criteria of "serious economic, societal or environmental difficulties". In a 1992 proposal for a Council Regulation (EEC) "concerning arrangements for implementing the Agreement on the European Economic Area", procedures were laid down for implementing Article 112. It thus proposed that, where a Member State requested the Commission to apply safeguard measures, "it shall provide the Commission, in support of its request, with the information needed to justify it".37

That should provide a sufficient template for the UK in relation to its Brexit negotiations, permitting a reasoned settlement which is capable of attracting political support. The bulk of these negotiations are not conducted within the framework of the Article 50 negotiations. The EEA Joint Committee and Council is the forum. This will require some deft legal footwork if the actions of the EEA Joint Committee and Council are integrated with the UK exit settlement.

But all in all, the prospect of a managed compromise on trade and free movement of people, via the EEA Agreement, looks to be worth further exploration.


Monograph 2: The WTO Option and its application to Brexit.

There are three main options available to Brexit negotiators to settle our trading relationship with the EU: the Efta/EEA Option (often known as the Norway Option); the bilateral free trade (or bespoke) option; and the so-called WTO Option. In this note, we look specifically at the WTO option, and its potential consequences for the UK.3

There is no example of a developed nation trading with the EU solely by reference to WTO rules. Of course, other countries – China, the USA, Canada – trade with the EU. But on top of their WTO arrangements are a lot of other deals. The OECD identifies eleven categories of agreement involving what is known as "International Regulatory Cooperation" (IRC). Only one of these is held on the WTO database: the rest on that of the UN.4

Altogether, the EU has 880 bilateral agreements with its trading partners, and there is no example of a developed nation trading with the EU solely by reference to WTO rules.

• the WTO option is a very dangerous and potentially expensive option which could do significant damage to the EU and UK, the effects of which could be long-lasting.

Relying solely on WTO rules has not been done by any developed nation.

If the Article 50 negotiations go wrong and the period of two years expires and we are left outside the EU, then this option might come about by mistake. It would lead to economic disaster.

• Is the EU Single Market worth remaining in? Why is trade with it so beneficial anyway?

The EU is very important globally: This law drives an EU-wide system that handles 17 percent of world trade – over two billion tonnes of goods a year with a value of €3.3 trillion. Between 2004 and 2010, despite the impact of the financial crisis, the value of EU external trade has grown by almost 50 percent.

The EU is at the centre of global trade and supply chain logistics, and is the number one trading partner for the United States, China and Russia. More than 90 percent (8.4 billion tons of merchandise) of global trade is carried by sea, of which more than 20 percent is unloaded in Europe.

3 For the purposes of this monograph, only the WTO option will be considered: discussions beyond the WTO will be counted as a bilateral free trade deal.

4 For example, the United States has its own State Department declare: "The United States and the 28 Member States of the EU share the largest and most complex economic relationship in the world". Transatlantic trade flows (goods and services trade plus earnings and payments on investment) averaged $4.3 billion each day of 2013. On the European Commission's Europa website, there is the Treaties Office Database which boasts an advanced search facility. Under

"agreement on Customs Matters" - an issue which is intimately trade-related – and "Agreement on internal market matters", there are recorded 38 EU-US "trade deals", of which at least 20 are bilateral.

A similar exploration of China's status with the EU identifies multiple agreements - 65 over term, including 13 bilateral agreements, ranging from trade and economic co-operation to customs co-operation. None of these are of the simple, tariff reduction variety, but collectively they have enabled China to become the EU's second largest trading partner, with trade valued at over €1 billion a day.


The EU has over 250 international airports. The eastern land border runs to almost 10,000km with 133 commercial road and rail entry points. Taking into account the entire EU external border (land, air, sea) there are in total more than 1,000 customs offices of entry.

In 2011, EU customs processed 36 million pre-arrival cargo declarations, 140 million import declarations, 96 million export declarations and 9 million transit declarations. These figures represent an average of 8.9 declarations per second handled by the Member States' customs administrations. They collected customs duties that contributed an estimated €16.6 billion the EU budget, i.e. approximately 13 percent of the total.

• The Customs Union is an exclusive EU competence: can it be restored after we leave the EU?

The point to be made here is that this body of law has emerged in its present form over many decades since its inception in 1968 and currently comprises over 1,300 pages. As regulations and decisions, they have direct effect. With UK independence, they would cease to have any legal effect in the UK. If the law was then to apply to the UK as an independent state, elements which were applicable to the UK (and within its jurisdiction) would have to be replaced.

Outside the EU, though, it is unlikely that this law could be re-enacted in its entirety. This complex and time-consuming process would lead to economic disaster once the UK had lost Union law as a result of the expiry of the Article 50 process.

• So what would happen? Customs dues (tariff) and non tariff barriers.

UK Customs authorities would be cut off from EU risk management and other databases, and previously shared systems for communication and information exchange. Having acquired the status of a third country, in respect of exports to the EU, the UK's "non-Union goods" would be subject to the EU's Common External Tariff (CET). This would be applied automatically, in accordance with the WTO's non-discrimination rules which require all third countries to be treated equally for tariff purposes.

With certain notable exceptions, however, for most industries the tariffs are minimal and amount to less than the normal currency variations as between sterling and the euro. Costs could be absorbed without significantly impacting on profitability or trade volumes.

The greater problem is the prevalence of non-tariff barriers which, in many instances of third countries dealing with the EU, are represented by regulatory barriers – the need to conform to EU product rules. Before imported goods can be placed on the market, importers must satisfy themselves that goods conform to relevant standards and, where specified in legislation, must provide independent evidence of conformity.

In the case of third countries, tests may be carried out in originating countries usually in conjunction with the international standards body (ISO). Recognition is either built into free trade agreements or is channelled though Mutual Recognition Agreements (MRAs) on conformity assessment. These have treaty status and are properly regarded as trade agreements, having a significant role in facilitating trade. Australia, Canada, Japan, New Zealand, the USA, Israel and Switzerland all have MRAs on conformity assessment with the EU. China also formalised an MRA on 16 May 2014.

Should the UK leave the EU, goods exported by the UK and presented for circulation in the Union market will be defined as "non-Union goods". Goods presented for clearance may require additional testing before they are allowed into circulation. At the moment goods can be moved around the EU without inspection.

For batches of goods for which testing is required, samples have to be obtained under official supervision and sent to Notified bodies. Costs can be considerable. Container inspection may reach


£700 (more if it has to be wholly or partly emptied) and detention fees are about £80 a day. Ten days or more may be required to obtain results and secure customs release, the cumulative costs adding up to £2,000 to shipping just one container into the EU.5

• the Authorised Economic Operators issue (AEO)

The Authorised Economic Operator (AEO) system awards AEO status to qualifying enterprises. The status itself is an internationally recognised quality mark indicating that the enterprise has a record of conformity with customs controls and procedures, entitling the holder to rapid access to certain simplified customs procedures and in some cases the right to "fast-track" processing of shipments through some customs and safety and security procedures.

Obviously, if the UK drops out of the Customs legislation as a result of Brexit, it will cease to have access to the AEO system in its entirety.

• So?

This has considerable implications for how we address the Article 50 negotiations. The adverse effects of dropping out of the EU Treaties without an alternative agreement in place are so serious that this is not something any responsible person would want to consider.

5 As regards products of animal origin, a more rigorous regime applies. Every consignment is subject to health checks at the border inspection post (BIP) in the EU country of arrival. Products may only enter the EU via designated BIPs. There are no BIPs geared to take goods from the UK. To equip port (or ports) capable of handling the volume of traffic from the UK would require major investment in infrastructure, personnel and systems.


Monograph 3: Financial contributions after Brexit.

There have been many different figures offered as to the financial contributions that will have to be made to the EU following our withdrawal from the EU, with estimates ranging from zero to a figure higher than the net payments currently made. As to estimating the actual amount which will be paid, this will depend on the nature of the exit settlement. But it cannot be zero.

• The Efta/EEA (Norway) option

The UK payment could be in the order of £4.3 billion, about a third of the 2015 payment. That is probably close to what we might be paying if we adopted the Efta/EEA option.

Each separate state each has its own contribution. Norway is the biggest and therefore the one most like the UK.

Norway, like the others, does not make a single payment to the EU in terms of a budgetary contribution, and some of the payments – although required by the EEA Agreement – are not even made to the EU. Of the several categories of payments made, there are the Norway Grants, the EEA Grants (handled together), the programme payments, and a direct subscription to Efta, some of which is used to manage the EEA.

The Norway Grants are settled by way of a formal agreement with the EU (which has the status of a bilateral treaty). They are made by Norway directly to eastern enlargement countries to help with their post-Communist economic rehabilitation. Norway is committing €391 million annually by way of Norway and the EEA grants. It is not EU money.

EEA grants are paid collectively by the three Efta/EEA states, although Norway provides the bulk of the funding (95 percent). Norway and EEA grants collectively amounted to €1.8bn over the 2009-14 period, of which €1.71bn was paid by Norway. As with the Norway grants, the EEA grants are paid as foreign aid. They are not fees for membership of the Single Market.

Programme costs are paid direct to the EU to participate in EU programmes. As of 2014, Norway participated in twelve, including Horizon 2020, Erasmus +, the Consumer Programme and the Copernicus programme. Norway also pays towards 27 Agencies, for example bilateral arrangement for participation in interregional programmes under the EU's Regional Policy.10

Additionally, Norway takes part in the activities of 27 EU agencies.6 Funding was not one-way. Around €1.01bn was returned from EU funds, making the seven- year net contribution by Norway (which provided just under all the funding) in the order of €620m - or about €90 million a year. This however has recently been increased and Norway will take part in several other projects.7

As to the specific Efta contributions paid for the functioning of the Single Market, these come out of the Efta budget. Norway pays a contribution to this budget. There is no direct payment to the EU.

The totality of the fees paid by Norway, however, are substantial. Collectively, they run to €869

6 These include the Education, Audiovisual and Culture Executive Agency (EACEA), the European Agency for the Management of Operational Cooperation at the External Borders (Frontex), the European Agency for Safety and Health at Work (EU- OSHA), the European Chemicals Agency (ECHA), the European Defence Agency (EDA), the Executive Agency for Health and Consumers (EAHC), the Research Executive Agency (REA) and the European Police College (Cepol).

7 There is €6 million for cooperation with the EU in the field of justice and home affairs, including participation in the Schengen, and around €25 million annually for the contribution in programmes under the European Territorial Cooperation Interreg.


million, per annum – approximately £750 million.

• How does this help the UK estimates of payments to the EU?

To be properly comparable scaling up should be on a GDP basis – as this is the basis for calculation. In which case, the UK payment could be in the order of £4.3 billion, about a third of the 2015 payment. That is probably close to what we might be paying if we adopted the Efta/EEA option.

• Free Trade Agreement: how much would that cost?

A common refrain, heard when referring to the merits of a free trade option along the lines of the Canada deal, is that those countries which enjoy such deals have access to the Union markets, but do not pay for it.

The problem with this argument is that it fails to acknowledge that the European Union is very much more than a trading agreement. It covers a huge range of cooperative activities

and initiatives which are not directly related to the administration of a Customs Union. 8

Whatever arrangements are made, termination of UK involvement in EU programmes and agency participation is not an option. Between sophisticated, open trading economies, a high degree of cross-border cooperation will always be necessary. And in the current security environment, neighbouring nations are seeking to increase rather than reduce joint activities.

Even with a loose, free-trade association between the UK and the EU therefore, it is inconceivable that the UK would drop out of all cross-border cooperation. And since so much of this is institutionalised via EU agencies and programmes, it is inevitable that much of

the activity will be channelled through established mechanisms. Unavoidably, this will carry costs.Norway is paying half a billion euros a year for participation and we could be looking perhaps at some £2 -2.5 billion ourselves – even without the payments to Eastern Europe.

• The WTO option and its costs:

This disastrous course (see Monograph Two) would still involve cross-border co-operation unless Britain were to become Cuba or North Korea. That will cost, however much the names of the contributions are disguised. And as the economy tanks, of course, money will be lost catastrophically.

• MFF future commitments (RAL)

What must also be factored into future payments are the Multi-annual Financial Framework (MFF) for the period 2021-2027. The UK will be entitled to take a full part in these talks, up until its point of departure.

Of particular concern are outstanding commitments at the end of the previous MFF period, known as RAL, from the French reste a liquider. RAL plus the staff pensions and other payments could easily exceed €350 billion. We must also be aware that we are not seeing consolidated accounts, and

8 Crucially, the UK is part of the Single European Sky programme, the European Defence Agency (which manages the RAF's A-400M airlifter programme), the European space programme, the research programme and the Erasmus student exchange programme, the European Medicines Agency (EMA) – and many more programmes/agencies which are vital to its national interests.


The European Medicines Authority is based in London and employs a lot of people. It is there as an EU institution. Will it close or be transferred to Catalonia?

the EU agencies are also declaring their own, separate budgetary RAL figures, creating a further potential liability. Since costs were incurred while the UK was an EU member (largely), it could be argued that there was a strict UK liability for repayment as it was instrumental in authorising the payments. Of any liability as it currently stands, the UK's responsibility runs to about 13 percent, which in sterling terms, could make the liability as high as £30 billion.

How much of that will have to be paid will undoubtedly be a matter for discussion during the Article 50 negotiations. One scenario is that we could be required to make staged payments over the MFF period to come, which would amount to about £4 billion a year. If that was imposed, it could represent a significant and unwelcome additional burden.

• And...

Effectively, for the year, the gross payments less rebate was just under £13 billion, which can be taken as a typical payment – although there are considerable variations, year-on-year.

To come to a net figure, there must be deducted the £4.4 billion returned for spending on EU policy areas. This includes the Common Agricultural Policy (CAP) and rural development. An amount goes to regional funds, and some goes to government bodies for distribution as research funding.

There are then the private sector receipts which go straight to the private sector and other non-governmental organisations such as universities. Annually, the figure is about £1.5 billion.

But that is not the end of it. There is also the question of overseas aid. Roughly £1.2 billion of the £11 billion aid budget is managed by the EU and paid as part of the annual contribution. Despite that, it goes towards the UK's self-imposed 0.7 percent GDP quota. If the sum was not paid to the EU, it would still have to be allocated to the aid budget. That £1.2 billion, therefore, is not available for redistribution.

This makes for baseline annual payments in the order of £7 billion – paid directly to recipients rather than via the EU.

• Why can't we just not pay?

We are bound by a legal agreements until 2020 to continue paying our dues.9 Furthermore, depending on the timing of the Article 50 negotiations and their duration, it is quite possible that the UK will become enmeshed in the negotiations for the next MMF (covering 2021-2027), while it remains a member of the EU.

• Conclusion:

The UK might well be paying some £2 billion per annum to the EU as a direct contribution.

It would make a lot of sense to pay £2 billion to the Eastern European countries too as we have growing links with them especially in farming and immigration.

We are already committed to £7 million direct payments and a further £4 billion RAL payments.

Current costs: £13 billion. We could save £2 billion a year.

Likely total until 2027: £11 billion.10

9 Premature termination of payments would amount to a "material breach" of the EU Treaties, permitting the parties (EU-27) to invoke Article 60 of the Vienna Convention on the Law of Treaties, as a ground for terminating the treaty or suspending its operation in whole or in part.34 This could have very serious effects on a wide range of policy issues, with costs that substantially outweigh any savings.

10 With the RAL payments, it would be £15 billion. This would mean that as we leave, costs actually increase!


Monograph 4: Article 50 and Brexit Negotiations.

In this Monograph, therefore, we provide the evidence as to why there is no choice about invoking Article 50. We then look at the parallel issue of when the Article should be triggered, with special reference to the two-year time period initially set. Finally, we explore the question of whether, once invoked, the Article can be withdrawn.

• Why Article 50 is not optional

Firstly, the important point to note is the nature of Article 50.

Article 50(1) of the Lisbon Treaty of the European Union (TEU) actually states: "Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements".

In fact, it is self evident that abrogation of a treaty is the act of a sovereign nation, exercised as of right. While there is extensive literature on this subject, with widely varying views as to the exact application of international law, it should be appreciated that politics, not the law, is the dominant factor in treaty negotiations. In that context, the decision to leave is a political act, made by politicians. It is not a legal decision drafted by lawyers.

Therefore politicians can alter it or abolish it.

The (European Union's) Praesidium on the (UN) Treaty of Vienna which governs international treaties said: “The inclusion of the provision in the European Constitution (and then the Lisbon Treaty), in the view of the Praesidium, was "an important political signal to anyone inclined to argue that the Union is a rigid entity which it is impossible to leave".

Given the function of Article 50, it cannot be argued that it is necessary to invoke it in order to leave the EU. That decision is taken independently by the State intending to withdraw and only once it has been made is the European Council notified, effectively starting off the political negotiating process. The purpose of Article 50 is to allow the withdrawing State and the remaining EU members to negotiate an orderly exit.

The immediate consequence of Article 50, therefore, is to suspend the effect of the decision to leave for, at the longest, two years. And there is no other detailed framework on which the withdrawing State can rely. In the Vienna Convention (Articles 65-67), there is only an outline procedure. And that means that Article 50 takes precedence.11

The UK is a party to the EU Treaties. The Government is obliged to honour the treaties by virtue of Article 26 of the VCLT. This articulates (or codifies) the universally recognised provision of pacta sunt servanda: "Every treaty in force is binding upon the parties to it and must be performed by them in good faith". As one of the major guarantors of international law, it is inconceivable that Her Majesty's Government could countenance a deliberate treaty breach.

If the UK did take the view that the provisions of Article 50 could be ignored, and sought agreements directly with EU Member States, the exercise would be sterile. The dictum res inter alios acta vel iudicata, aliis nec nocet nec prodocet applies (two or more people cannot agree amongst each other to establish an obligation for a third party who was not involved in the agreement). For the UK to separate from the EU, both sides need to come to an agreement.

Should the UK choose to repeal or amend the European Communities Act 1972, or take any other

11 All states are bound by a fundamental tenet of international law, known as the principle of lex specialis derogat legi generali (special law repeals general law). In short, whenever two or more laws or treaty provisions deal with the same subject matter, priority goes to that which is more specific.


unilateral action before the conclusion of the Article 50 procedural steps, the other EU Member States could summarily eject the UK from the EU, with potentially catastrophic results.

• Timing of the Article 50 Negotiation

The choice of timing is entirely a matter for the United Kingdom.

The problem is that if no agreement has been reached by the end of the two year period, the treaties automatically cease to have effect and the UK ceases to be a member of the EU - unless a time extension is sought – which would require the unanimous approval of the European Council. And that would leave the UK open to one or more of the remaining 27 EU Member States expecting the UK to offer concessions in return. This price could be unacceptable, forcing the UK to leave the EU without an agreement.

The further problem is that the possibility of reaching a comprehensive agreement within two years is extremely remote. There is no example in recent times of the EU ever having concluded a trade agreement of anything like this complexity in just two years.12 To avoid potential electoral damage, the UK could agree to bring forward the Article 50 notification, in agreement with other Member States who would be asked to entertain an application for extra time as the very first item in the order of business. The UK could, for instance, apply for a three-year extension, making five years in all – thus taking the time-limit off the agenda. The crucial issue is that other Member States themselves have been agitating for a early Article 50 notification. The uncertainty is as damaging to them as it is the UK – if not more so. Thus, for a very brief window, the UK has some leverage.

• Reversing the Article 50 notification

There are several schools of thought as to whether, once invoked, the UK can change its mind and decide not to leave, reversing Article 50. As in so many things, though, this could be a lawyers' paradise. In deciding on such matters, lawyers will undoubtedly be consulted, and arguments will be made with reference to treaty law. But it is at the political level that talks will be held and decisions made.

In practical European politics, treaties have a habit of meaning what the parties intend them to mean. The legalities are then brought into line with the reality.

• Conclusion

1. There is absolutely no merit, whatsoever, in the argument that Article 50 can be ignored. We are bound in so many ways to following the Article 50 procedure that is should not even be worth discussing. It is worth noting, though, that Article 50 does not confer a right to leave. That is an inherent right, not dependent on any EU Treaty.

12 Even in the relatively straightforward Greenland exit from the EEC in 1985, the negotiations still took two years. The current round of EU-Swiss talks, which are taken as the basis for many of the exit models proposed for the UK, started in 1994 and took 16 years to conclude. Work on the EU-Canadian Comprehensive Economic and Trade Agreement (CETA) started in June 2007 and it took until October 2013 for its key elements to be agreed, a period of just over five years. Nine years after the starting gun was fired, the agreement still has not been concluded.


Prime Minister Gordon Brown signs the Lisbon Treaty on behalf of UK.

2. As to the timing of the Article 50 notification, there appear to be very few options available to the UK Government. The pressure on the one hand is for a speedy exit, which calls for an early notification. On the other hand, the constraints of the two-year negotiation period present almost insurmountable problems, while the consequences of failure are potentially severe. It would seem appropriate in the first instance, to seek an extension of time, before Article 50 negotiations start in earnest – a possibility that German officials seem to recognise as being realistic. A phased exit, combined with the adoption of the Efta/EEA option, together with the transfer of detailed negotiation to the EEA forum, would then minimise the pressure on time.

3. This brings us to the third issue – the possibility of reversing the Article 50 notification. This has been seen by some as the ultimate safety valve in that, should negotiations go badly wrong, the UK Government can "reboot" and revert to the status quo ante. Such an escape route may well be possible, but it is impossible to say whether it could be relied upon. Given the uncertainty, to build this in to any negotiating strategy would seem unwise

The only certainty that we are able to confront is that, to achieve an orderly (and lawful) exit from the EU, the UK will need at some time to invoke Article 50.


Monograph 5: Trade Barriers and Brexit.An oft' repeated mantra relating to the forthcoming Brexit negotiations is that the EU is bound to offer the UK a favourable deal because we have a substantial trade deficit with the EU and (especially) German manufacturers will want continued access to our markets. The trade imbalance with the EU, it is argued, would preclude any predatory action, any barriers to trade.

The reality is that these barriers are already in place, in the manner of walls surrounding "fortress Europe". As members of the EU, the UK is inside the walls. Leaving the EU (without a comprehensive trade agreement) would place the UK outside those walls – the effect of its own action rather than of any specific action taken by the EU.

• The UK's trading position

The Centre for European Reform (CER) recognises that the EU buys (nearly) half of the UK's exports while the UK only accounts for around ten percent of EU exports.

However, the ultimate Article 50 settlement is agreed by qualified majority voting, while half of the EU's trade surplus with the UK is accounted for by just two member states: Germany and the Netherlands. Most EU member states do not run substantial trade surpluses with the UK, and some run deficits with it. Those in deficit might seek a settlement which has the effect of blocking (or restricting) UK imports, looking for opportunities to increase intra-community trade without competition from the UK.

Where tariffs might bite is on manufactured goods such as motor vehicles, with a disproportionate effect on Britain's poorest regions. Here, it is argued that, if the EU did impose tariffs, the UK could retaliate by imposing tariffs on vehicles exported from EU Member States. Sadly, such a straightforward response is not available to the UK. In imposing tariffs on the UK, the EU would be acting in accordance with the rules of the WTO trading system. On the other hand, it is not at all clear what tariffs the UK could impose, having been a member of the EU/EEC Customs Union for over four decades. There is no recent tariff history.

It would mean either adopting the EU schedule unchanged or negotiating a new settlement with the WTO, whose rules demand that if the UK imposed tariffs on the import of goods from EU Member States. It would have to impose the same level of tariffs on similar imports from every other country in the world.13 On the other hand, if the UK decided to remove tariffs from EU products, it must do the same with all other WTO members.

• Asymmetric discrimination

Under certain circumstances, the EU is exempt from WTO anti- discrimination rules and is permitted to discriminate between trading partners. This exemption is not specific to the EU but applies to all WTO members which enter into Regional Trade Agreement (RTAs), of which the EU's Customs Union is one example. The EU now applies the full MFN tariff to only nine of its trading

13 Other than those with which it had negotiated preferential trade agreements.


The Single Market is like a citadel: you are either completely in – or completely out.

partners. The UK leaving the EU would make it ten.

• Non-tariff barriers

Non-Tariff Measures (NTMs) or Technical Barriers to Trade (TBTs) have become far more important than tariffs. This is something readily acknowledged by the British government. These measures, it says, often stem from domestic regulations enacted primarily to achieve valid domestic goals. Therefore, unlike tariffs they cannot be removed simply.

Furthermore, they are a growing problem. In 1995, the WTO received 386 formal notifications of TBTs. By 2013, this had risen to 2,137. Overall, they are estimated to add more than 20 percent to the costs of international trade, compared with the average costs of tariffs in the order of 2-3 percent.

In 1987 the EU set up the Single European Act to prevent the member nations protecting their own markets triggering an explosion of regulatory and allied measures. The UK has already paid the price for achieving a high degree of regulatory convergence with the EU. As long as the UK stays in the Single Market, regulatory barriers will have little effect on trade between the UK and EU Member States.

If we leave that market, however, we need to demonstrate conformity with EU regulatory requirements, by means of approved mechanisms of conformity assessment. This creates an ongoing requirement which cannot be satisfied solely by regulatory convergence. And it is not an issue that can be ignored in cross border trade.14

• Maintaining regulatory convergence

As the UK grows away from the EU, it is very likely that regulations on both sides will drift apart. Standardisation will gradually become very different.

The need to maintain convergence is often downplayed, on the basis on an argument that over 90 percent of the British economy is not involved in exports to the EU. However, this goes entirely against the grain of globalisation, where traders and manufacturers prefer working to global rather than national, or even regional standards. As trade has globalised, so has regulation. And when it comes to the choice of standard, firms opt for the most demanding, simply because it is cheaper and more efficient to work to a single standard. For the UK to demonstrate continued regulatory convergence, it will need to commit to full conformity with these international agreements, heavily restricting its own independent rule-making capability.

However, it is unlikely that the EU will accept informal assurances that conformity is being maintained. In any agreement with the UK, the EU is likely to be looking for a dynamic arrangement which can ensure that UK regulation is constantly updated to ensure continued convergence.

For manufacturers servicing a global market, the greater need is for uniform regulation. The WTO also does not allow internal barriers to trade favouring a local market.15

14 See monograph 2.15 WTO members "must not apply internal taxes or other internal charges, laws, regulations and requirements affecting imported or domestic products so as to afford protection to domestic production".


• Conclusion:

What emerges is that the global trading system is heavily biased against the single nation trading without the benefit of regional trade agreements. This would be the position of the UK in the immediate aftermath of Brexit if it failed to conclude a satisfactory (or any) exit agreement. Exporters would find that the EU was permitted to discriminate against them, while there is no prospect of retaliatory measures. This has significant implications for the Brexit negotiation strategy, limiting the leverage which the UK can apply. Much the same applies to tariff barriers, and non-tariff barriers. Maintaining ongoing regulatory convergence is essential.

This would tend further to support the idea that the UK's best interests are served by continued participation in the EEA, for the time being.

a longer- term objective might be to look at global solutions rather than to focus on EU relationships. What can be resolved in global forums can also ease trade at regional levels.

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