Project Fear – Dave’s Dodgy Dossier. Part 1

The vexed question of how to vote in the up-coming EU referendum is causing increasing debate in all corners of the land. The Government, in its anxiousness to ensure that the British public are adequately informed about the complexity of withdrawal, have issued a document whose flaws quickly became apparent. Within days of its public issuance, it was dubbed a “dodgy dossier”.

The document in question is entitled The process for withdrawing from the European Union. It was issued by the Europe Directorate of the Foreign and Commonwealth Office and is dated February 2016. Chapter 1 is an introduction of two sentences; Chapter 2 is an executive summary. Chapter 3 is entitled “Article 50: the route to withdrawal”. Chapter 4 is “The implications of withdrawal”; and Chapter 5 contains the conclusions.

It is 25 pages long, of which four pages separate each chapter and are coloured a blank grey. So the bones of the document are contained in Chapters 3 and 4 – a mere eight pages. The immediate impression is that this is a lightweight document. That alone should raise suspicions about its veracity and usefulness. It is littered with timorous, qualified statements where the outcomes are couched in the most pessimistic tones. Only negatives are considered. In overall flavour, it is little more than a long press release, but presented in such a way as to give the impression of an official report. It is thereby given a quasi-official importance which it does not deserve.

In the negotiations that will result from a “Leave” vote carrying the day, there are two main threads to consider:

  • Trade agreements.
  • Constitutional problems such as the ECJ, ECHR, environmental laws, agricultural payments and so on.

This document succeeds in muddling these two issues in such a way as to give the impression that our exit from the EU may take up to ten years and that the negotiations and “being on our own” will be ever so frightful.

The purpose of this post is to analyse and then discuss the claims in Chapter 3. Subsequent posts will deal with Chapter 4 and conclusions.

Chapter 3 opens with Para. 3.1 and the reasonable, but rather earnest: “We would want to open a constructive negotiation with the rest of the EU in order to agree positive terms for the UK’s exit and the future relationship.” This is fair enough, but already the tone for the whole document is set in terms of the rather timorous aspiration that we hope that the members of the other countries will not be nasty to us.

Para. 3.2 sketches the implementation of Article 50 of the Lisbon Treaty, which allows for withdrawal from the EU. Para. 3.1 states that this is the only lawful way to withdraw from the EU; and that unilateral withdrawal is likely to lead to a hostile environment in which to negotiate a new relationship. This is technically true, but other means of unilateral withdrawal do exist in international law under the Vienna Convention, but these can be difficult. So Article 50 is undoubtedly the best and most practicable way of going about things. However, see notes below in Para 3.4 about Greenland.

Para 3.3 notes that Article 50 allows for a two year negotiation and that extension requests “would provide opportunities for any member states to extract concessions from the UK.” Note the  early worries about the possibility of the EU being nasty to us.

Para 3.4 says “There is no precedent for a country withdrawing from the EU – Article 50 has never been tested.” Even if Article 50 has never been tested, it is there for just this eventuality. Just because something has not yet been tested, does not mean that it should not be tested. So lets us be proud that, once again, the United Kingdom will lead the way for other countries to follow.

Para 3.4 goes on to say that EU trade negotiations take a long time – EU-Mercosur started in 2000 and still not concluded; EU-Canada has taken seven years and is still not completed. All of this is true, but it should be pointed out that the EU completed a free trade agreement with Ukraine in a month – which suggests that they can do it fast enough when they are politically motivated enough.

Ironically, this admission of hugely long and wasteful processes is one of the strongest arguments for Brexit. This is one of the reasons why the UK economy is being held back. Para. 3.4 also fails to mention that Greenland was  a member of the EEC until 1985. They withdrew prior to the formation of the European Union and prior to Article 50 of the Lisbon Treaty, but nevertheless have proved that it is possible to exit the system without too much difficulty and also amicably. Greenland stills receives structural aid from the EU in exchange for fishing rights. The EU is Greenland’s biggest export market.

Para. 3.5 points out that Article 50 involves a sequence of processes involving the European Commission, the European Council and the European Parliament. Again there is a caveat that this should not be assumed to be straightforward, and it cites the example of EU-South Korea talks which were held up for six months because of concerns of member states. But South Korea is not a member of the EU, so this example is a red herring. The UK is already a member of the EU and so there is very little to change (in principle) and very few objections likely to interfere with the flow of negotiations through the Commission-Council-Parliament process.

Para. 3.6 concerns the scope of the of the UK’s future relationship with the EU. It suggests that “ambitious” negotiations would need the unanimous agreement of all member states and that this would add to the complexity and time needed for negotiations. I suggest that our future arrangements with the EU are perfectly straightforward. We want a trading arrangement with a tiny number of add-ons such as security intelligence sharing. There is no reason why this should give anyone an excuse to string out negotiations unnecessarily.

Para. 3.7 says that a new trade agreement and wider co-operation would require ratification by many member states, in addition to the EU. It goes on to say “This would give every Member State a further opportunity to block the agreement for any reason.” This may all be true, but blocking by individual states is unlikely happen unless there is a real cause. There may be one or two areas where this could happen. UK-Spanish relations are currently a bit strained over Gibraltar, for instance.

Para. 3.8 describes the way in which the two year time limit could limit our ability to get the best deal, without going into extension time. Only where UK did not seek special conditions, would the two year limit be feasible.

Para. 3.9 again emphasises that extensions to the two year limit requires unanimous approval from the remaining 27 states. It goes on to suggest that this operates as a lever to wring concessions out of the UK. This is almost a repeat of Para 3.3.

Para. 3.10 is a confused paragraph which attempts to set out the difficulties of tying in trade negotiations with non-EU countries whilst at the same time as negotiating UK withdrawal from the EU. The objections raised are:

  • ….many of our non-EU trading partners are already negotiating with the EU” in their own right. It is suggested that they would want those negotiations to conclude before they deal separately with the UK.
  • Non-EU countries which are trading partners of the UK, and which already have a trade deal with the EU, are likely to want to see the terms of the outcome of our own terms agreed with the EU.
  • The aforementioned objections make parallel negotiations difficult and lengthy.

Once again, whilst there may be hurdles, none of them are insuperable. The main aspects of trade with foreign countries which crop up in trade talks are:

  • Standards of manufacture or services have to be agreed.
  • Tariffs have to be agreed.

What cannot be stressed enough is that the UK is already a member of the EU and is fully compliant with both standards and tariffs. This means that:

  • Those countries which already trade with us are perfectly well aware of the standards and are able to cope with them, because they already do.
  • Those countries which are currently negotiating with the EU are aware of the standards that they will have to meet. To trade with the UK will most likely involve the same standards for the foreseeable future (because we are already trading with the EU and will want to continue to do so).
  • The principal difficulty will lie in differential tariffs between ourselves and the EU. For the immediate future, these are very unlikely to change. Variations over time may begin to emerge as our economy moves more towards non-EU countries. But this is negotiable and can be taken as and when a potential problem arises.

Para. 3.11 says “it is probable that it would take up to decade [sic] or more to negotiate firstly our exit from the EU, secondly our future arrangements with the EU, and thirdly our trade deals with countries outside of the EU, on any terms that would be acceptable to the UK.” This is nonsense. Paragraph 3 of Article 50 is very clear. It says: “The treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to an paragraph 2, [i.e. notification and negotiation] unless the European Council, in agreement with the member state concerned, unanimously decides to extend this period.” This paragraph is a deliberate conflation of trade deals with the other issues relating to our future relationship with the EU.

Para. 3.12 begins “A considerably larger percentage of UK economy is dependent upon the EU than vice versa. This would have an impact on the dynamic of the negotiations. The EU is a by a wide margin the UK’s biggest trading partner. Some 44% of our exports go to the EU.” These statements are misleading for two reasons:

  • It deliberately confuses trading with countries within the EU, with trading with the EU as a single entity. The UK does not sell goods or services to the EU as such. We sell  to Germany or France or which ever country we wish, albeit under standardised EU conditions and tariffs.
  • The figure of 44% is misleading, because UK exports to the EU are inflated by the “Rotterdam effect”; i.e. goods exported by the UK via Rotterdam destined for, say, the Far East, will be counted as exports to the EU. For a brief discussion, see here for an explanation. This kind of effect may also skew overall EU statistics for the Netherlands and Belgium (via Ostend). Working the figures from other sources suggests to me that this overstatement of UK exports to the EU may amount to something like 5 or 6%.

The only way we can put the effect of our imports and exports into the context of likely outcomes from EU negotiations, is to look at the imports and exports from and to our biggest EU customers:

                           Screen Shot 2016-03-04 at 11.14.38

Here we can see that our exports to Germany (our biggest export market), as well as France, the Netherlands and Belgium, are all exceeded by our imports from them. As many Eurosceptics point out, we are the largest consumers of goods from the biggest and most influential players in the EU. In the unlikely event that they erected trade barriers against us, a quid pro quo action on our part would hurt them a lot more than it would hurt us.

The paragraph continues with: “The UK is more reliant on exports to the EU than the rest of the EU is reliant upon exports to the UK. Taken as a share of the economy, only 3.1% of GDP among the other 27 Member States is linked to exports to the UK, while 12.6% of UK GDP is linked to exports to the EU.” Once again, we have to view this in the context of the individual countries which make up our principal trading partners within the EU:

Screen Shot 2016-03-04 at 09.02.46

Considering Germany as the most important, it can be seen here that our imports of German goods and services amount to 2.9% of their GDP. UK exports are 2.1% of their GDP. In the figure above, the Netherlands and Belgium both export proportionately far more than France and Germany. However, it should again be pointed out that the Rotterdam effect is very influential, especially for oil and refined petroleum products. When looked at this way, for France and Germany, the gap between imports and exports to and from the UK is quite small. This would suggest that the trading balance is closer than it appears in the raw numbers; and that any potential eagerness to disadvantage the UK in post-Brexit negotiations would be diminished.

The statement “...12.6% of UK GDP is linked to exports to the EU.” appears to be just plain wrong. This figure is closer to 7.2% of UK GDP, even if we accept the higher figure of 44% of UK exports going to the EU. The chart below puts each country’s total exports to all EU and non-EU destinations, into overall context.

Screen Shot 2016-03-04 at 09.04.58

Note that all the charts are derived form figures given in Wikipedia, for each relevant country, e.g. for Belgium here.

Para. 3.13 says: “Just as the Government would be driven by our wish to secure the best possible outcome for the UK, we should expect the remaining 27 Member States to be driven by their own national political and economic interests, and would fight for them as hard as we would for the UK’s position.” This is perfectly reasonable, but it gives the impression that each Member State is going to use the opportunity of Brexit to get one over on the UK. In some cases that may or may not happen; but this is not a time to be spineless and to show the other side that you are willing to capitulate at the first negotiating hurdle.

This concludes the analysis of Chapter 3. Analysis of Chapter 4 will follow in the next couple of days.

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