The rules of free trade are undeniably complex, and are the product of many decades of agreements negotiated by numerous bodies. That is why extricating the UK from the EU is so very difficult, writes Philip Allott (University of Cambridge). He sets out why the ‘Norway option’ holds little appeal.
The level of ignorance that surrounds the effort to withdraw the UK from membership of the European Union can only be justified by the complexity of the underlying legal situation which is as complicated as any legal situation can be. It involves the interaction of four different legal orders. National law. EU law. World Trade Organisation law. General International Law. This situation is at the root of the chaotic negotiations between the British government and the EU institutions.
The global trade system is governed by the World Trade Organization (1995). There are 164 members of the WTO, including the US, China, India and Japan, all the member states of the EU, and the EU itself. The WTO is a continuation and massive amplification of the General Agreement on Tariffs and Trade (1947) which was part of the economic reorganisation of the world after World War Two, together with the IMF and the World Bank which stabilised the world financial system.
GATT was designed to put an end to one aspect of the economic chaos of the 1920s and 1930s. It embodied a policy of ‘free trade’ that had arisen after the Napoleonic wars in Europe and which had given way to chaotic protectionism in the 20th century. The policy of free trade includes an idea that net global wealth will be increased if goods are allowed to move freely from countries where they are best produced (for reasons of climate, resources, skills, or manpower) to countries where they are wanted.
With the dramatic economic development of the US (after the end of the Civil War in 1865), Japan (after the Meiji Revolution of 1868), Germany (after its creation in 1871), and Russia (after the revolution of 1905), the wars of the 20th century were the product of a tectonic clash between frenetically modernising economies and age-old systems of crude diplomacy and war. The EU is another product of that event.
The WTO system incorporates the GATT Agreement, including the most fundamental principle of free trade known as the ‘most favoured nation’ principle (Article I). You cannot give trade preferences to one country which you do not give to all the other members of the WTO.
The MFN rule would presumably apply to the UK if it were no longer a member of the EU. The EU itself has trade agreements with 43 other countries. The UK’s position in relation to those countries would have to be renegotiated. The UK has investment treaties with many other countries. They are not trade agreements, but give a legal basis to protect mutual capital investments. They would presumably be affected by UK withdrawal.
The EU has concluded more than 300 international agreements. The UK and the EU are separately parties to the UN Law of the Sea Convention, giving effect to their respective responsibilities in the field. There are hundreds of other intergovernmental organisations with decision-making powers. For example: UN Law of the Sea Tribunal; International Centre for the Settlement of Investment Disputes; Interpol; World Health Organization. 158,000 treaties have been registered with the UN since 1946. Such is the ‘sovereignty’ of states. Making a treaty is a sovereign act. Every treaty is a limitation of sovereignty. Self-interest chooses common interest.
The original WTO system consists of thousands of pages of legal texts, to which have been added many further international agreements, countless further texts produced by its governing bodies, and very many decisions of its quasi-judicial dispute-resolution system which can lead to a decision ordering a member state to cease a practice contravening WTO law – analogous to the role of the European Court of Justice. Why this monstrous complexity of the WTO system?
The problem is that, in an immensely dynamic global economy, the rules of free trade are extremely difficult to enforce. When traditional protectionism (customs duties and quotas) is removed, there remain countless other ways of directly or indirectly restricting imports and distorting world trade, invented by the fertile intelligence of civil servants under the influence of ruthless industrial and commercial enterprises.
Dumping (exporting a product at an unnaturally low price that undercuts the same product made in the importing country). Government assistance to national industries, including tax breaks. Above all, so-called non-tariff barriers to trade.
There is a mass of national law governing trade and industry and commerce. In the public interest, you may have laws prohibiting the sale of goods that do not satisfy technical standards, say to protect health and safety or the environment, or to protect the holders of national patents or copyright, or to prevent anti-competitive behaviour (collusion among companies, or the behaviour of a company that grows so large that it can exclude its competitors from the market), and countless others. All of these can be used to restrict or prevent the import of goods and services that do not satisfy the laws of the importing state.
The WTO system has two great exceptions to its fundamental rule. Customs unions. Free trade areas. A customs union has free trade among its members and a single trade policy vis-à-vis non-member countries, including the making of trade agreements. A free trade area has the first characteristic, but not the second. NAFTA, the Trans-Pacific Partnership, and the proposed Asia-Pacific Free Trade Area are examples. The UK sponsored the European Free Trade Area (1960) which allowed it to retain its external trade policy, including Commonwealth Preference and the Sterling Area financial system.
When the European Economic Community (1958; known as the EU from 1993) was proving to be a spectacular success, the UK had to become a member (1973). Given that so much of UK trade was with EEC countries, the UK was subject to law and government in the making of which it played no part.
The problem was that, in the meantime, the EEC had become a vast legal and governmental system with masses of further agreements, laws, secondary legislation, subordinate agencies, committees of civil servants from the member states interpreting and applying the legal rules at the most detailed level, and countless decisions of the European Court of Justice. Why? For the same reason that explains the complexity of the WTO.
Removing the two traditional barriers to trade (customs duties and quotas) is relatively easy. Creating a level playing-field for trade and industry and commerce, and enforcing it, are extremely difficult things. In capitalist terms, you have to create a market in which market-forces can determine production, distribution and exchange, and in which government economic intervention should assist in achieving that aim.
What came to be called the EU ‘single market’ is the creation of that level playing-field market, using EU institutions to create EU law integrated into the legal and governmental systems of the member states. Non-tariff barriers to trade had to be dealt with.
The EU had to undertake the massive and unending task of eliminating or harmonising non-tariff barriers to trade (shape of tomatoes, doctors’ qualifications, etc.), including aids to industry by national governments, and control of anti-competitive behaviour by companies. Movement of persons and of investment capital in response to market forces had to be freed, and the movement of those who provide professional services.
In highly developed economies, you cannot have a customs union without a single market. They are inseparable. You cannot be in the EU custom union and not be part of the single market. If you are outside the EU customs union, your economic activity in a EU member state will be subject to the ever-changing legal regulations laid down by the EU institutions and integrated into the law of the member state where you do business. For example, EU competition law applies to US companies trading in the EU. Cars imported into the EU must satisfy EU emissions standards.
There is talk of a ‘Norway’ solution to the problem of UK withdrawal. That is to say, that the UK’s new relationship with the EU would be on the lines of the European Economic Area. For an outsider, the EEA is difficult to understand. The following tentative opinion is subject to the views of the Legal Services of the European Commission and the European Council who invented the EEA:
1. In World Trade Organization terms, the EEA is presumably seen as a free trade area containing Iceland, Liechtenstein and Norway (three of the four members of the European Free Trade Area), the EU itself, and the EU member states. If so, it would be a free trade area that contains a customs union (the EU) as a member.
2. In return for free trade with the EU, the non-EU EEA member states agree to accept the application of the single market system to their trade with the EU (in the form of a shared ‘internal market’), creating a level playing-field between them and the EU member states, so that the non-EU members of the EEA do not have an advantage over the EU members.
3. However, the non-EU members of the EEA are not represented in the EU institutions that make single-market law and its implementing law and subordinate decision-making.
4. The EEA relationship is made under general international law. The EEA agreement is a treaty integrated into the law of the non-EU members, the laws of the EU member states, and into EU law. It presumably counts as a trade agreement of the EU, in the conduct of the external trade policy of the EU customs union.
5. If the UK became a member of the EEA, or if a new enlarged EEA were created, the treaty to do that would also take effect under general international law, subject to parliamentary ratification in all the remaining 27 members of the EU and in all the members of EFTA, by legal acts within the EU, and by ratification by the Government of the UK, where treaties are not ratified by Parliament, but are given legal effect in the UK by statute law (Acts of Parliament).
6. For the UK, the net effect of a ‘Norway’ solution, as compared with the UK’s present situation, would seem to be that we would still apply single-market law but would no longer be represented in the EU institutions that make single-market law and its implementing law and subordinate decision-making.
It seems unlikely that a major trading-nation doing very much of its trade with member states of a customs union that includes the legal system of a single market would choose not to participate in the institutions that create and control that system.
It so happens that UK withdrawal is not the worst of the EU’s current problems. The relationship between a government and the market in capitalist systems is all-consuming and fundamental. The EU is in that relationship with the overall EU economy. But this means that the relationship tends to reach into higher and higher levels of the public policy which ultimately determines the distribution of the burdens and benefits of a society, perhaps even fiscal policy. In a liberal democratic capitalist system, this means that there must be politics.
The EU has the substance of traditional liberal democratic institutions, but it does not have the essence of liberal democracy, which rests on the relentless daily struggle of public opinion, causing and justifying law-making and government and administration. Resolving that problem is an urgent priority. Another urgent priority is to establish the EU in its rightful place as a great power on the global stage.
This post represents the views of the author and not those of the Brexit blog, nor the LSE. It first appeared at the UK Constitutional Law Association blog.
The most interesting and farsighted comment comes in the penultimate paragraph where it implies that while economic relationships have developed within the EU’s single market, political integration has so far not happened. Within European nations this integration of capitalist markets and political institutions came about during the 17th and 18th centuries through immense struggle between competing interests. In many cases the struggle resulted in democratic institutions with at least some representation of the people. This is what we have today and is presumably what Allot refers to as “traditional liberal democratic institutions”. But these democratic institutions lie at the national level. This is what is lacking at the EU level. But while the need for democratic institutions at a European level might be urgent they can only be forged through political struggle and active participation of the demos. A message from the UK-EU Ref vote shows how large swathes of the European citizens feel about the EU and its lack of accountability. Brexit has given voice to the people and the struggle to forge democratic accountability begins.
I think the big question is does the democratic accountability come the EU developing more democratic institutions or does it retain more of the intergovernmental model and have democratic accountability through the national governments?
“Brexit has given voice to the people and the struggle to forge democratic accountability begins.” Yet earlier you said it began in the 17th and 18th centuries. If we trace the ebb and flow of this struggle over the intervening centuries it has not all gone in one direction. The growth of corporate and financial power and the retreat of government into taking up the role of a subordinate service industry to corporate power brokers has sent democracy into severe retreat in recent decades in the UK, yet the EU has not been instrumental in this. It is the Anglo-American Neo liberalism that originated in UK and US national politics that played the major role in forcing democracy and egalitarianism into retreat. Neo liberalism has undoubtedly infected some areas of EU politics (mainly via the UK) but it is more prominent and influential in UK politics than in the rest of the EU and UK politics has been more seriously damaged by it. The implied conclusion that somehow the EU is holding back the re-democratisation of UK politics does not stand up to historical examination. The reality is nearer the reverse of this.
As for the lack of democratic accountability in EU politics. As with UK politics there are undoubtedly areas of democratic deficit in the EU. Just as the UK has an undemocratic and archaic electoral system, no written constitution and an unelected second chamber the EU seriously lacks accountability in a number of areas e.g. the management of appointments to the ECB. You point to the lack of political integration as an explanation for any democratic deficit in the EU. Yet many people fiercely oppose political integration and it is not a pre-requisite for democratic representation. The EU has conceded a need for directly elected representation to a European parliament regardless of there being no political integration, and this exists. Representatives in the European parliament can negotiate their role and “struggle with competing interests” just as they could in a national parliament where there was political integration. They have had a major impact on issues like the proposed TTIP trade deal and the licensing of Glyphosate. You might note that these are issues that have had no airing in UK parliamentary politics despite widespread public concern. They would have been pushed through under the radar had we been solely depending on UK “democratic” processes. Members of the European parliament can and do challenge the commission and can claim a mandate to do so. Admittedly there is a way to go in building understanding of EU parliamentary democracy and what it offers UK and other EU citizens but a failure to engage with voters (and vice versa) is not grounds for abandoning a parliamentary system or else the UK parliament would have been wound up long ago.
I think it is appropriate for decisions to be made at different geographical scales from local up to the global depending on the nature of the decision that needs to be made. Crimes against humanity or eradicating some virulent diseases is best dealt with on a global level. Getting agreements on e.g. tax evasion, global banking or corporate power is best dealt with on the level of regions like the EU rather than trying to hammer out agreements between hundreds of individual national governments all with pick lists of vested interests. The principle of subsidiarity is not a threat to sovereignty or democracy. If managed well it gives people more say in what happens to them not less.
There has been an historic ebb and flow in political struggle and democratic accountability and it hasn’t all been in one direction. The last 40 years have seen the power of ordinary people reach a low point as they have been pushed out of politics while bureaucratic, top-down mechanisms, such as the EU have come to dominate. The dominant discourse can be summarised by “There Is No Alternative”, TINA, or there is no alternative to the free market and economic realism. Political ambition has been squeezed out in favour of technocratic handling of the economy. But in Brexit and elections across Europe, indeed the one in Italy last week, we might detect a stirring from below. An unwillingness to accept the orthodoxy, a thirst for something different, a desire for an alternative. Neoliberalism might well have first emerged from the UK but it has certainly been fully embraced by the EU and the goal of a single “free” market. Indeed the neoliberal attitude and TINA infuses the blinkered perspective of those who insist we must resist Brexit and their preoccupation with the economy and the single market – “there is no alternative to the EU”, “there is no life outside the EU” they cry.
The UK democratic institutions might be archaic and in need of renewal but nevertheless Parliament, and other European national equivalents, remains the highest expression of democracy we have to date. While the representatives (MPs and government) might well be infected by ideas of neoliberalism that does not imply that the mechanism of democracy should be by-passed. The UK Parliament is a legislative body and an arena for political discussion and scrutiny. The institution has been forged through struggle between competing interests but most importantly it is the result of struggle for universal suffrage, a struggle fought from below not imposed from above. It is where the will of the people has been, and still can be exercised. In terms of democratic accountability, the EU does not compare. The European Parliament was not forged through struggle from below but by arrangement among the political elite. This relates to my comment about the EU lacking politics integrated with economic necessity. The Common Market/EEC/EC/EU have been essentially economic projects creating a trading bloc or single market to protect and shelter European business from international competition. The EU institutions were not created by the European people fighting for suffrage, against despots, and fighting for their control. As a result the EU institutions lack real legitimacy. They have been devised from above by ministers and civil servants. Despite some attempt to create European culture and politics, this cannot be created by bureaucracy and dictat. In the past left-wingers and progressives looked to the people, or the working class, to build a better world. It was argued that they were more numerous and they had least vested interested in the system and had most to gain from a more equitable society. Now these left-wingers have abandoned the people and instead look to unelected and unaccountable bureaucrats. They are fearful of the masses. They fear that if we have popular control over decision making it will end in economic disaster, racism, dirty beeches and chlorinated chicken.
The EU should not be abandoned because of its failure to engage with the electorate, it should be abandoned because it is not democratic and is an attempt by government (including the UK’s) to circumvent democracy. It is anti-democratic. The European Parliament is not a legislative body but rather a mechanism to rubber stamp legislation made largely via the trialogue process. MEPs do not have the power to propose legislation and have limited power to reject the legislation made elsewhere. Over 85% of legislation is written via trilogue and this proportion in recent years has increased significantly. The trialogue consists of negotiations between the European Council, Economic Commission and representatives of the European Parliament. Legislation is drafted and discussed behind closed doors, away from popular scrutiny. The fact that TTIP trade deal received no airing in Parliament is exactly my point. The EU is being used to by-pass the democratic institution of Parliament. Government at different geographical scales is fine, including at European level, but just so long as the governments are genuinely democratic – the EU is not. There is also no reason why national governments cannot cooperate and reach agreement over issues of international concerns. This is the stuff of international relations and has been around for a long time.
If you want to have your views considered in your “genuinely democratic” UK you will have to queue up behind the corporate lobbyists, corporate donors, UK millionaire private donors, foreign billionaire private donors etc, they all have opinions about how this country should be governed that our politicians listen to.
You do not seem to have made a connection between your statement that:
“The last 40 years have seen the power of ordinary people reach a low point as they have been pushed out of politics….”
and the fact that political parties now have to raise vast budgets to fund very expensive political marketing campaigns in order to win elections and they can only raise that money from the sort of people I have listed above.
The political marketing experts then help the political parties to target the small number of voters in a small number of swing constituencies that they need to win the election.
The reason ordinary people have been pushed out of politics is that the political parties do not need them any more to win elections. They just need the rich people to give them money that they pay the marketing people to target the relatively small number of swing voters who they need to win the election. The EU has nothing to do with it.
If you want to see corporate lobbying in action then go to Brussels. There no place like it, its the capital of corporate lobbying. There is estimated to be over 30,000 lobbyists (almost matching the 31,000 employed by the European Commission and is a multimillion Euro industry: “From mobile phone charges to nations’ interests, these shadowy agitators are estimated to influence 75% of European legislation” (The Guardian). This is no coincidence but connected to the top down character of the EU institutions and lack of popular accountability.
Mark Ramsden, most excellent comments.
The Brexit issue throws up fundamental questions about the nature of government that tend to be ignored a the superficial level that political debate usually operates at.
I accept that this article was very specifically focusing on the Norway model. I accept the conclusion that the Norway model is worse than what we have. I also note that the other realistic Brexit options i.e. the ones that do not presume the EU should give the UK privileged status over and above EU member states as a reward for leaving, are all worse still. The fact that the Norway model was a worse option than membership but was the best of the achievable Brexit options was the basis of my voting decision. Most other arguments in the debate appeared suspect, partial, emotive or based on false assumption and perceptions. There could still be an argument for the Norway model for people who feel that we have a duty to respect the outcome of the vote but to do it in a way that inflicts the least economic damage. A compromise option following an admission to ourselves that it was a bad decision, but we should be bound by it. If we consider this, we should quantify the scale of the impact to decide whether the price of maintaining this sort of integrity, despite the bad outcome, is worth the damage it may do in the future.
Going back to fundamental questions about the nature of government this article threw light on the issue of sovereignty. Sovereignty on politics and “harmonisation” in trade economics are two sides of the same coin. It states:
“Such is the ‘sovereignty’ of states. Making a treaty is a sovereign act. Every treaty is a limitation of sovereignty. Self-interest chooses common interest.”
When countries want to trade they need to harmonise their laws and regulations in the areas where they want to trade so that one country does not end up importing products that are not legal to sell under domestic law like chlorine treated chicken, mastitis infected milk or hormone treated beef. This means surrendering a degree of sovereignty in exchange for the advantages conferred. My understanding is that the UK government uses statutory instruments to introduce new trade agreements or change existing ones so it typically concedes UK sovereignty to other states on the basis of an executive order without any parliamentary scrutiny or public consultation. Meaningful sovereignty demands a different attitude.
I do believe there is an issue of sovereignty. There should be much wider consultation on treaties like trade agreements, well beyond the government and governing party to everyone who could be affected, because every time a treaty is signed or withdrawn from it affects the laws we are subject to in our country long term and can bind future governments into arrangements they cannot easily amend. Having said, that we are culturally much closer to Europe than to China or the USA so if we are going to have to concede sovereignty it would be better to maintain harmonisation with the EU than with countries that permit their own food to be contaminated, have little respect for public safety or human rights or that elevate political ideology or corporate power over the interests of civil society. There is much that happens routinely in the China and the USA that is revolting to British standards and attitudes. If we are to bring our laws nearer to other countries it should be countries we share more moral values and social attitudes with. We cannot avoid sacrificing some sovereignty for the sake of our own welfare, we should opt for the arrangements that make the least concessions on sovereignty and threat to our way of life for the arrangements that give us the most gain. Brexit does not achieve that, it does the opposite.
Where I live in Scotland sovereignty is currently divided roughly as follows:
– 45% Scottish Parliament
– 45% Westminister
– 10% EU
In terms of what directly impacts my life the most, the Scottish Parliament is the most important, followed by Westminster then finally the EU.
When I hear Boris Johnson saying that there shouldn’t be unions between nations and that all sovereignty should be at a single level, it sounds to me like an argument for Scottish independence.