just started talking to Pascal Lamy, who starts with "Brexit [is] like trying to remove an egg from an omelette". Mixing the omelette (ie the SM) took a very long time; extracting from it will also take a very long time, and will be 'very complex' and 'costly'.
He continues with the omelette, noting that the success of 'three baskets' will depend on how 'cooked' the omelette is. Uses cabotage as an example; both sides would like to retain the rules, but EU might attach conditions on driving/working hours. Is that acceptable to the UK?
Eg, separating out bits of the 'omelette' is going to be much more complicated than suggesting policy areas can fall within 'three baskets' acknowledges, per Lamy.
Lamy sets out three tiers of trade 'openness', with the SM at the top, deep bilateral agreements in the middle, and WTO rules much less open than bilateral agreements.
What in the UK would take the biggest hit from going WTO-only? Lamy suggests 0% tariffs are desirable and possible, but TBT and SPS will cause problems if there is regulatory divergence; agriculture will be more difficult; and services will be much more difficult.
Lamy asked if he agrees with EU's 'staircase' pitting 'no deal' as worse than any of the deals. Lamy: WTO is what 'no deal' will result in - UK is already a member of WTO, so that will provide the floor of trade regulation. It is not the 'law of the jungle', but will be costly.
Lamy points out that if WTO rules are not the ideal most governments are interested in, hence why parties went for 'level 2' agreements (bilateral ones) and the EU went for 'level 1' agreements (the SM.)
Lamy: no matter if you strike bilaterals (level 2) or go WTO only (level 3), upon exiting the EU, there will be a border in Northern Ireland. Goods will need to be checked for duties (and RoO), for compliance with technical/SPS requirements, and so on. That will mean a border.
The question left to answer is 'where does this border go?', but there will be a border. He raises the Macau option - give NI autonomous trade capacity as Macau has via China, and NI can then align (in all ways necessary) with Ireland.
Lamy has never seen a 'virtual border'. He's very interested in them, but has never seen one - Norway and Sweden still require a physical border. Electronic checks most of the time (which he is a fan of!) does not preclude the need for occasional physical checks.
Would the WTO permit the UK to unilaterally operate a frictionless border? Lamy: a border by definition is a place where you do checks on both sides. If UK was willing to give zero tariffs to all goods and no safety/compliance checks, this could mean no checks from UK side.
Lamy seems to think that the UK would not give up on the 'precautionary' checks even if they are interested in unilateral zero tariffs. Even if standards from the EU are unilaterally accepted, this may not be mutual (which would create a border).
Is the EU some sort of 'gold standard'? Is it not over-regulated and costly in some regards? Lamy says the SM generally produces economies of scale. Some individual MS may have had higher costs in the transition to common standard; but access to the SM beyond compensates.
He does specify SM not perfect and complete: in increasingly good shape re goods, but needs work on services.
Is it a fair assessment to say that the UK's real choices are either staying in the EU, or leaving both the CU and the SM, as staying in one or the other does not actually remove borders? Lamy: EU was a CU for long time before in 1992 becoming SM.
Lamy: Norway chose not to be in CU for very specific reasons. Turkey is an 'awkward situation' that nobody is happy with - the Turkish example is not relevant to the UK, as it was premised on Turkey joining the EU in short order.
Coming back to unilateral 'no border' in NI: is that WTO possible for the EU/ROI only (with both tariffs and 'standards') but not for other WTO members? Lamy: in theory, MFN - but Art 24 allows for regional agreements, but only where they 'essentially all trade' is covered.
They also need to be notified to WTO, and in theory WTO members have to clear this PTA as satisfying Art 24. This process is very delayed and shallow. (Eg: a regional trade agreement covering essentially everything would permit 'no border' for EU/ROI goods alone.)
Does Lamy know of any country that unilaterally has opened up its borders completely? Lamy: no, because such a country would have no negotiating capital. This is not how the WTO works - it starts with barriers and removes them, not starts with 'no barriers' and adds them.
If there is an open door between south and north (and so NI has EU standards), how would the border be avoided east-west? Lamy: it would not be unless GB also adopted EU standards. You have a border either east-west or north-south.
Are there any examples of countries in a customs union whose border with countries that are not in the customs union is completely soft? Lamy: no, I can't think of any.
Belonging to CU means you have a single tariff and single control. There is an element of trust that goods in that CU have been checked before circulating in the CU - that trust would be violated if a 'third country' had an open border to the CU.
Lamy notes that 'autonomous customs territory' is a way to deal with disagreements about sovereignty as there have been vis-a-vis Taipei.
There is now a question and answer on RoO if NI mirrors EU and UK has FTA with US and a product comes from US to UK and then from NI into EU. I am... I have not had enough coffee to transcribe this. Read the transcript!
Question on how Phase 1 agreement could be met via a 'customs arrangement'. Lamy has a hard time imagining what this could be and 'arrangement' is 'a bit vague for [his] technical mind. ... is there something like a pregnancy arrangement? No. You either are or not.'
So is there no such thing as a 'customs arrangement'? (That seems like it describes Turkey, which is not part of a 'union'). Lamy: processing customs is about implementation of a trade agreement - checks are needed, and how do you do them? But: there is a border.
Lamy: like all EU members, UK is in its individual capacity already a member of the WTO - and it pays its individual participation share into the WTO budget. (He notes the EU itself would pay much less if treated as one country - but they are treated as individual members!)
Post-Brexit, technical issues (splitting Tariff Rate Quotas as the best known example) will need to be resolved within the WTO. EU and UK here will not have a problem - it will be with third countries. Notes petition tabled by Uruguay et al that disagree with simple split.
These details will be very complex to iron out, but UK's membership is not contestable.
Lamy: once Brexited, the UK can negotiate and conclude FTAs. That's the legal reality - but whether or not it will happen is a different matter. In his 30 years experienced-at-trade view, third countries will want to know what UK/EU are doing before committing to anything.
Notes it is likely that UK/EU deal will have an MFN clause, meaning that third party pressure cannot 'erode' preferential treatment agreed with the EU. So there will be limited negotiating room to manoeuvre, even barring regular issues of asymmetry.
Will the UK's lack of membership of the SM diminish its value in future trade deals? Lamy: yes, and particularly in the services sector, where it has benefited from being the 'entry gate' to the EU market. However, UK might wish for more open trade policy than EU.
How would being in a CU with the EU affect UK trade policy? Lamy: there are various models; belonging to a CU means abiding by the trade arrangements this CU enters into. An interesting one: the Jersey option (@SamuelMarcLowe !!!!), aka a goods only CU.
If in a CU for goods, then UK would not recover its trade autonomy for goods, but it might recover its trade autonomy for services. Not saying this is 'the' solution, but it might look logical for the UK if serious about avoiding damage in bilateral trade in goods.
He does raise that this type of CU would need to be checked at the WTO as it does not cover 'essentially all trade' - ie, by means of exclusion of services, which are a rather big proportion of the UK economy.
Lamy: if UK stays in EU CU for goods, it will have to abide by the EU arrangements for goods, which are already extremely open - and they will only reduce further (on tariffs). This is different from technical standards, but alignment there is essential to avoid CU + border!
Question on rolling over/replicating EU FTAs as a start. Might that not be possible, given those third countries are waiting to see what EU/UK deal looks like, or might there be other conditions? Is this going to be treated as a starting point for negotiations?
Lamy: assumption is that UK will have to say, let's keep things the way they are for the moment. Whether others will accept this and not use it as a lever, he's not sure. In theory, they will have an argument to do that - as UK market not EU market, significantly smaller.
In Lamy's views, these replicated agreements will be 'provisional'; and that we have to hope that nobody else is playing ... ducky? Ducky? No, he said dirty! Okay.
Will the UK's ability to compete on a level playing field (by using trade defence mechanisms) be improved or diminished by Brexit? Lamy: EU is highly active here, 250 experts. UK will have to build its own system, which will be v complicated.
If UK out on its own, trying to take anti-dumping measures against China (re steel for instance), would be as effective as EU: yes and no, says Lamy. Yes, in principle, technical solution is the same. The 'no': China might be able to cope with UK obstruction, but not EU.
As it is a smaller market, less of a problem for China. (So: diminished effectiveness.)
If transition is a stand-still, is it conceivable that non-EU countries will want to engage with UK on trade deals during transition? Lamy: same answer as before: in theory, yes, but in reality, will wait until EU/UK deal struck.
So: what does Lamy think the DiT is doing at the moment? Lamy: its first job is to be established - there needs to be UK expertise, which will take time to build (several years). The UK will also need to decide on what its trade policy will look like.
Minor service interruption for a diaper change ... picking back up now.
Lamy: there may be niche situations where third country A has an interest in a product that will be easier to trade with the UK than the EU, but this will be the exception - most of the time, market size will be most interesting. [paraphrased]
Will negotiations be needed to start trading on WTO terms, as some WTO employees have suggested? Lamy: my answer would be more cautious if I was still DG of the WTO, as WTO members legally have a right to those negotiations. My opinion now: unlikely to happen, as 'provisional'.
Could we be so bad at trade negotiations that we might even lose WTO terms? Lamy: in theory, but in practice, very unlikely. Main problem with WTO option is not goods, but rather services, where differences between EU --> FTA --> WTO only are much more severe.
More on steel dumping - was the EU process on this not slow, and could we not do this quicker to save eg our steel sector if we acted alone? Lamy: EU not particularly slow here, alone costlier. [Unstated: UK lobbying actually key to EU not adopting those AD duties v China.]
Some confusion about cabotage... now a question: isn't the WTO for global trade liberalisation? Why is Lamy now favouring bilaterals over the multilaterals? Lamy replies with Chinese proverb: 'don't mind the colour of the cat as long as it catches the mice'.
Lamy: lowering barriers is what matters. Bilaterals lower barriers. Multilateral is the lowest common denominator, where very different agreements can agree on very basic rules. Everything else that opens up trade is good. It's not either/or. It's both.
Bilateral has also opened up the way for multilaterals. Trade purists will say that bilaterals are preferential and so should be avoided - it risks creating trade diversion, 'blah blah blah'. Lamy disagrees: bottom line is all trade increases. [paraphrased]
Next Q: approximation of laws. When we leave the EU, we will have the same trading arrangements with the EU as we do now. Do WTO rules protect this status quo following Brexit? Lamy: WTO rules regulate terms of trade; they do not regulate technical specifications.
TBT and SPS set out that you cannot 'manipulate precaution for the sake of protection'. So, the issue of whether UK and EU keep regulatory convergence post-Brexit, or go to mutual recognition, or whether there is a notification system - this is beyond WTO law.
But won't it be hard to say that UK goods are not acceptable to the EU if standards stay the same? Lamy: this is a pure matter of sovereignty. Explains national treatment: the WTO is about non-discrimination in standards between (eg) domestic and third country producers.
Lamy: so as long as no discrimination, there is sovereignty in setting standards (unless internationally set). EU can always erect new trade standards - but standards must be identical to UK and EU producers.
Mutual recognition of standards: is it unusual EU does not do this, or is ANZCERTA an exception to general rules? Lamy: fragile, still not used regularly (though more than before), and there are usually just nice words about best efforts to cooperate.
Final question (I think): how long would it take to negotiate a CETA-style agreement? Would 'Canada Dry' take 5-6 years? Lamy: I proposed the idea of CETA in 2002 so it took a while. My hope would be that we get much more than 'Canada Dry'; huge difference between SM and CETA.
And we're done. None of that was verbatim, except if in quotation marks - I did the best I could keeping up. Thanks to @CommonsEUexit for hosting Pascal Lamy.
