The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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The Art of the Possible

By Marcus Watney

For the past four years and four hundred miles away, an unequal confrontation has been taking place between a tiny country swamped by uncontrolled immigration and the mighty unresponsive EU.

Switzerland's population is just 8.5 million, an eighth that of the United Kingdom, of which about two million are foreigners. Of those, 1.4 million are EU citizens.A further 365,000 commute in daily from Germany, France and Italy. With about a quarter of its population born outside the country, Switzerland is one of the two countries in the western world with the highest proportion of immigrants.

Switzerland is the only country in the world with Direct Democracy, a system of government by which voters give instructions to their government direct via regular constitutionally-binding referendums.In a referendum in February 2014, by a very narrow margin, Swiss voters instructed their government to pass a law within three years applying quotas to EU immigration.

This precipitated a crisis with the EU as to do so would be a breach of the free movement of people accord, acceptance of which the EU considers to be a prerequisite of participation in the Single Market. The EU responded by bullying Switzerland, suspending it from the Erasmus student exchange programme and the EU's science research programme, in spite of the fact that quotas had not yet become law. The chief EU negotiator, Maciej Popowski, called on the Swiss to change their attitude, announcing loftily "It is unimaginable that one takes a step backwards. Safeguarding clauses belong in the past"

The deadline expired in February 2017.The Swiss Government has responded by trying to fudge the issue. A new law has been passed making no reference to quotas. Instead it pretends to give job priority to local residents. In reality it does not.EU nationals and commuters can still register themselves at job centres throughout Switzerland, thus becoming as 'local' as genuine local residents. Effectively the EU has, at least for the time being, crushed the Swiss constitution.

However, on 16 January 2018 the Swiss People's Party (SvP), sponsors of the previous referendum, and the Action for an Independent and Neutral Switzerland (AUNS) together received permission from the Swiss Chancellery to start collecting the 100,000 signatures needed to trigger a new referendum. They have 18 months to do so. This new referendum's subject is tougher than the 2014 'quotas' one and is effectively a referendum on whether the disputed advantages of the bilateral trade agreements currently in place are worth the price of unfettered EU immigration.

Of course the British position is far stronger than the Swiss. Switzerland is surrounded by the EU which is its dominant trading partner. Switzerland with its tiny population exports to the EU four and half times as much per person as Britain does. The UK on the other hand trades more with the non-EU world than with the EU-27, even before the Rotterdam Effect is taken into account. And the UK's internal trade is four times those two combined.

That said, the EU's intransigence towards Switzerland suggests the UK will have a fight on its hands if it wants to adjust the freedom of movement of people to the public's liking while preserving freedom of movement of goods, services (incomplete) and capital. This article explores opportunities for compromise.

Changing the EU's Perception

There is little chance of compromise before the EU looks in the mirror and develops a realistic view of itself and its failings. It was as long ago as 2001 that the EU's Laeken Declaration finally acknowledged the democratic deficit. But since then none of the flaws it identified have been addressed.

"Within the Union, the European institutions must be brought closer to its citizens... [Citizens] want the European institutions to be less unwieldy and rigid and, above all, more efficient and open. Many also feel that the Union should involve itself more with their particular concerns, instead of intervening, in every detail, in matters by their nature better left to Member States' and regions' elected representatives. This is even perceived by some as a threat to their identity...

At the same time, citizens also feel that the Union is behaving too bureaucratically in numerous other areas...What citizens understand by 'good governance' is opening up fresh opportunities, not imposing further red tape. What they expect is more results, better responses to practical issues and not a European superstate or European institutions inveigling their way into every nook and cranny of life...

The Union needs to become more democratic, more transparent and more efficient."

The Laeken Declaration on the Future of the European Union stretches to just eight pages but is well worth reading as an example of hypocritical piety. Here, in this declaration, for the first and only time in its existence, the EU admitted to the world that it lacks democratic legitimacy and that its citizens are fundamentally opposed to the creation of a European superstate. Because in the following fifteen years it forgot to again look in the mirror, it has come face to face with Brexit, the beginning of the end of the integrationist dream.

Today, the hubris of the European Union continues to blind it to reality. More and more the rumour is heard, from inside and outside the EU, that the EU will purposely offer the UK a poor trade deal in the hope that it will force a reversal of the referendum decision. This is the same mistake the EU made before the vote, when it sent Cameron home with a pathetic offer. Just as the contempt then shown the British people precipitated the Leave vote, so a bad trade deal is likely not to cause a reversal of the referendum decision but the opposite: a decision to revert to WTO terms and keep for ourselves the £40bn or so of aid so far offered to the EU.

A hard Brexit would be awkward for both sides but not disastrous. After all, a third of the world trades under WTO terms. The UK trades with the USA on WTO terms. The awkwardness would stem not from WTO tariffs which are at historic lows but from those non-tariff barriers that would suddenly spring up where none before existed. The land border with the Republic of Ireland is an obvious problem area in a hard Brexit.

But in searching for a long-term agreement, a compromise, there are two ways forward that avoid both a bad deal and a hard Brexit, two templates upon which to build a new and mutually prosperous relationship with the European Union.

Both require a maturity of attitude, a willingness to accept that the four freedoms are not immutable and that there is no shame in retracing one's steps to the junction from where a wrong turning has been taken.

The First Template: Crown Dependencies

The first is to use the status of the Channel Islands and the Isle of Man as a template for the future relationship of the UK with the European Union. As Crown Dependencies, both the Channel Islands and the Isle of Man are outside the EU, but have a friendly and positive relationship with the EU.

As the Brussels office of the Channel Islands explains:

"Under Protocol 3, the Islands are part of the Customs Union and are essentially within the Single Market for the purposes of trade in goods, but are third countries (i.e. outside the EU) in all other respects. However the Channel Islands have a close relationship with the EU in many different fields, not simply those covered by the formal relationship under Protocol 3, as this note explains. Both Jersey and Guernsey voluntarily implement appropriate EU legislation or apply the international standards on which they are based."

The Wikipedia entry 'Special Member State Territories and the European Union' adds:

"The islands take part in the EU freedom of movement of goods but not labour, services or capital. They are outside the VAT area, but inside the customs union.Channel Islanders are British citizens and hence European citizens. As a result, they can travel freely within the EU, and all European citizens can travel to the islands without restrictions. However, the islands do not participate in the freedom of movement of labour, and as a result their citizens are not entitled to work or reside within the EU unless they are directly connected (through birth, or descent from a parent or grandparent) with the United Kingdom. After five years continuous residence in the United Kingdom islanders are entitled to participate in the freedom of movement of labour or services throughout the EU."

The Isle of Man has exactly the same relationship with the EU, except that it is inside the VAT area.Like the Channel Islands, the Isle of Man takes part in the EU freedom of movement of goods but not of labour, services or capital.

This shows the claim promulgated repeatedly by the EU, that the four freedoms are indivisible, is simply untrue. In the case of the Channel Islands, the Isle of Man and other Overseas Countries and Territories (OCTs) a mix-and-match approach has been successfully implemented. The mix the UK is looking for is freedom of goods, services and capital but not labour, and to be outside the Customs Union. The Channel Islands and the Isle of Man have bespoke deals. Why not the mainland?

The Second Template: Article 28

Contrary to the impression Michel Barnier, Donald Tusk and others like to give, that everyone must obey the same rules and they cannot be changed, the EU has in the past shown flexibility.Regulations have been adjusted, in particular for EFTA countries like Liechtenstein.

The European Free Trade Association (EFTA) was established by the UK in 1960 as a counterbalance to the EEC (the bloc that would become the EU).It brought together those nations that were outside the bloc. Gradually, the original members of EFTA transferred to the EU until today EFTA has shrunk to just four nations: Norway, Iceland, Liechtenstein and Switzerland. In 1994 the first three, while remaining in EFTA, also joined the European Economic Area (EEA). Switzerland did not, but in the following years negotiated with the EU ten bilateral treaties covering 120 subjects which today largely mimic EEA membership.

The EEA is the Single Market. Its membership is defined as all EU member states plus Norway, Iceland and Liechtenstein. The EFTA members of the EEA pay an annual subscription for the right to participate in the Single Market.Significantly, they may end membership unilaterally without going through the convoluted process of Article 50. This is because the EEA is an entity in its own right, quite separate from the EU.

The original EEA Agreement mandated a much more stringent approach to immigration than has come to be the case today. Here is Article 28 of EFTA's EEA Agreement. It can be found on page 13 here: http://www.efta.int/legal-texts/eea .

1. Freedom of movement for workers shall be secured among EC Member States and EFTA
States.

2. Such freedom of movement shall entail the abolition of any discrimination based on
nationality between workers of EC Member States and EFTA States as regards
employment, remuneration and other conditions of work and employment.

3. It shall entail the right, subject to limitations justified on grounds of public policy,
public security or public health:
(a) to accept offers of employment actually made;
(b) to move freely within the territory of EC Member States and EFTA States for this
purpose;
(c) to stay in the territory of an EC Member State or an EFTA State for the purpose of
employment in accordance with the provisions governing the employment of nationals of
that State laid down by law, regulation or administrative action;
(d) to remain in the territory of an EC Member State or an EFTA State after having been
employed there.

4. The provisions of this Article shall not apply to employment in the public service.

5. Annex V contains specific provisions on the free movement of workers.

What Article 28 reveals is that EFTA-EEA members were intended to have significantly more control over immigration than is the practice today. Freedom of movement now is commonly referred to as "of people" whereas, as the first words of Article 28 remind us, it was originally "of labour", a subtly different thing.

Article 28 defines three significant limitations on the freedom of movement of workers.

First, EFTA's freedom is "subject to limitations justified on the grounds of public policy", a usefully vague derogation. For example, Liechtenstein, because of its small size, has derogations severely limiting immigration and the purchase of land (see Annex VIII). Effectively it trades in the Single Market with virtually no free movement of labour.

This general limitation is confirmed in Article 33 which states:"The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health."

Second, and most importantly, the right is "to accept offers of employment actually made", not to merely turn up and hope to find a job after arrival.

Third, the freedom "shall not apply to employment in the public service."

Together, these three limitations offered very substantial controls on immigration. And note that these controls are over and above the infamous 'emergency brake' that so bedevilled Cameron's negotiations. In the EEA Agreement, the 'emergency brake' is found at Article 112 Paragraph 1.

But then in 2004 the EU Commission moved the goalposts. That year the Citizens' Rights Directive liberalised these restrictions for all members of the EEA whether they liked it or not. To be eligible for free movement today, the citizen needs to meet only one of four conditions: working as an employee (or looking for work for a reasonable amount of time), being self-employed, studying, or being financially self-sufficient or retired. It was no longer necessary to have a job offer before moving to a new member state. This Directive caused some disquiet in the EFTA-EEA nations: Norway showed its opposition by not complying until 2010.

It is this lax Directive rather than the original EEA Agreement which has caused the perception of an immigration crisis in the UK and Switzerland. The Citizens' Rights Directive will certainly be repealed after Brexit. In searching for a replacement to be enshrined in a bilateral free trade deal, a replacement that must be acceptable to both the EU and the British public, reverting to the intent of Article 28 of the original EEA Agreement may be the way forward. After all, the EU can hardly refuse, as Article 28 was drafted by the EU Commission and was the basis upon which three of the four EFTA nations joined the EEA.

If the UK's trade deal embraced this idea and it was properly enforced, under Paragraph 3(a) it would allow recruitment of staff for the NHS, for seasonal agricultural labour and for specialist jobs, which all agree is desirable, while largely satisfying the public's concern about the bad aspects of unfettered immigration.

The interim report of the National Conversation on Immigration, which upon completion will be presented to the Home Affairs Select Committee, was published in January 2018. This report finds that most people appreciate the contribution hard-working skilled immigrants make but are hostile to the present culture of uncontrolled immigration, which is seen as creating in some neighbourhoods ghettos of unemployed immigrants reluctant to integrate. Scrapping the Citizens' Rights Directive and reverting to Article 28 would be in tune with the national consensus the report sees emerging.

Indeed, given the unpopularity of the Citizens' Rights Directive in other host countries like Norway, a return to Article 28 may be seen by the EU itself as an attractive way to defuse the growth of euroscepticism.

The four freedoms are not cast in stone and have evolved over the years. They can therefore be 'unevolved'.But is the EU capable of seeing this? Its track record this far is not good.

Continued Participation in the Single Market

A question that may be asked is can the UK continue to participate in the Single Market (with or without new derogations) via the original EEA Agreement during the transition period, when the UK is not a part of the EU, EFTA or (conceivably) the EEA itself? The question arises because participation in the Single Market via the EEA officially requires membership of either the EU or EFTA, and the UK will likely be in neither during transition.

For some years the EU has been negotiating with the microstates of Andorra, Monaco and San Marino with a view to their participating fully in the Single Market.Initial consideration was given to the microstates joining EFTA-EEA but Norway objected that this would not be a good fit. Liechtenstein then suggested breaking the rules by allowing the microstates to join the EEA without joining either the EU or EFTA. Finally, in November 2013, the EU Commission announced that for political and institutional reasons participation in the Single Market via the EEA was not a viable option for the microstates, and instead proposed a tailor-made Association Agreement, allowing them to participate in the Single Market without joining the EU, EFTA or EEA.

Thus the examples of Liechtenstein and the microstates show that the EU does make bespoke agreements which, yes, amount to cherry-picking. It would certainly help Brexit negotiations progress more rapidly if the EU at last dropped this false assertion that the four freedoms are immutable.

A Soft Landing for a Hard Brexit

But what if no tailor-made Association Agreement, no transition deal at all, is in place at the moment the UK leaves the EU? In order to cushion business, it is highly desirable, both for the UK and the EU, for the UK to continue in the Single Market for an interim period. Can this be done without a deal?

The EEA is an entity which exists parallel to but distinct from the EU. This is clear because when in 2004 the Central and Eastern European nations joined the EU, there was a flurry of signings of the EEA Agreement quite separate from the accession ceremonies. The existing members of the EU, including the UK, consented to the new nations joining the EEA by countersigning the Agreement as sovereign nations, merely noting their membership of the EU beneath each signature. The EU as an entity did not sign in place of the member states.

The EU and the EEA are also known to be distinct and separate entities, not directly linked or dependent on each other, because of the peculiar status of Croatia. EU accession talks concluded in June 2011. But Croatia did not start EEA accession talks until September 2012. As a result when Croatia joined the EU on 1 July 2013 it was not yet ready to join the EEA, in spite of the fact that all EU members are required to be members of the Single Market via the EEA. So, by special decree of the EU Commission, since May 2014 Croatia has been merely "participating provisionally" in the Single Market while awaiting formal ratification of its joining by the parliaments of all the members of the EEA.By June 2017, the EEA Agreement had still been ratified by only 17 of the 31 parties plus Switzerland.

The UK is presently a member of the EEA. Because the EEA is separate from the EU, leaving the EU does not of itself remove the UK from the EEA or Single Market. Effectively, if the UK leaves the EU without a deal, the UK defaults to pure Single Market membership. It is accepted that it is possible to continue participating in the Single Market without being a member of the EU, EFTA or EEA because this is the solution the EU Commission has proposed for the microstates. Like Croatia, the UK can declare that it is "participating provisionally" in the Single Market.

Beyond Transition

If the Government fails to get a satisfactory long-term agreement from the EU in the coming months it will be because it has tried to swallow a whale in a single gulp. The EU has insinuated itself into every aspect of national life. To disentangle the UK from it was always going to be a massive undertaking.

Rather than trying to do everything within a particular time-frame, it would have been altogether more advantageous to withdraw in two stages: first leave the political EU via the European Union (Withdrawal) Bill and pay little or nothing, relying on default membership of the Single Market to ensure there was no dislocation to the economy, and secondly decide in the following years as an independent nation what trading relationship Britain wanted with the EU. It would have been then and only then, as the UK negotiated a long-term trading relationship beneficial to both parties, that significant financial aid to the EU would have been appropriate.

After the transition period it might well have been seen to be in the UK's interests to leave the Single Market and the EU Customs Union, as the former adds friction to internal trade (Briton to Briton) and the latter imprisons the UK in a protectionist enclave that is fundamentally discriminatory. Rejoining EFTA would have been an attractive option. EFTA has 27 free trade agreements in place including Canada, with six more being actively negotiated (the EU has 25 not counting EU and EFTA states, plus CETA and a number of controversial Economic Partnership Agreements being "provisionally applied").

But, on the other hand, if the consensus at that time were to have been that the UK should remain in the Single Market, fine. Trading relationships can be renegotiated at any time. They are not subject to the byzantine procedures of Article 50. The important objective has always been to free the UK from the anti-democratic and intrusive political EU smoothly and completely. And at the moment, the economic considerations of withdrawal are distracting the Government from that goal.

As it is, Canada-plus-plus-plus seems unlikely to be acceptable to the EU. But for those who believe the UK should remain in the Single Market, Liechtenstein-minus (EFTA-EEA membership with a derogation that replaces the Citizens' Rights Directive with the former Article 28) ticks the boxes. Liechtenstein-minus is in harmony with public opinion, takes us outside the EU Customs Union so permits negotiation of global free trade agreements while ending the discriminatory Common External Tariff, protects Britain's service industry and, most importantly, causes no more of a problem with the Irish border than exists between Norway and Sweden. And if in the years ahead even EFTA-EEA participation in the Single Market were to prove problematic, then the EEA could be left without needing EU approval.

Establishing a new relationship with the EU will require compromise. But this is normal in politics. For as Bismarck observed: "Politics is the art of the possible, the attainable — the art of the next best". Liechtenstein-minus is possible.


Author: Marcus Watney

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Friday, 16 November 2018