Published by The Spectator
Another crucial
period has begun in the Brexit saga. Boris Johnson has ruled out extending the
transition stage beyond 1 January, after which the UK will no longer
automatically take over EU regulations or align with EU trade policy. So the
key question surrounding Brexit will finally need to be answered: what are the
conditions for the UK to retain a decent amount of market access to the
EU?
The answer the EU has
given is that the UK must abstain from unfairly subsidising its companies. That
is a fair demand, but the EU also wants the UK to
continue to align with EU rules on state aid. The latter is something fiercely
resisted by the British, and rightly so. The stakes are high – along with
fisheries, it’s seen as the key sticking point in the negotiations. FT
columnist Wolfgang Munchau, a senior observer of EU politics, thinks that ‘it is whether
[the] EU accepts [an] independent UK state aid policy. If yes, there will be
deal. Otherwise no.’
If the EU and the
United States were to conclude a trade deal, the EU would be right to oppose
submitting itself to the American state aid regime. Likewise, it doesn’t make
sense at all for the UK to continue to bind itself to the European
state aid machinery.
The UK can, of
course, pledge not to engage in unfair state aid. But both sides could also
secure that commitment through their own institutions. The UK could, for example, create an independent
authority to police state aid, subject to review by Parliament and the UK
courts.
Many on the Continent
rightly admire Britain’s institutional architecture, with the rule of law as
its cornerstone. So why should they distrust the UK here? Things are not always
perfect in the UK of course, as Brandon Lewis’s recent comments on
international law have shown. But things aren’t perfect in the EU
either. Without even mentioning the likes of Hungary or Bulgaria, it’s
sufficient to take a look at my own country, Belgium, where the slow moving
judiciary just failed, after 12 years to
conclude a criminal investigation into the financial conglomerate Fortis,
following the 2008 financial crisis. At the end of the investigation, nobody
was held responsible. So much for distrusting UK institutions.
Fears that the UK
would suddenly massively engage in state aid after Brexit – apparently held by Merkel’s man
in Brussels, David McAllister – are a bit odd, as Britain only spent half as much on
state aid as the EU average in 2018. That’s before Covid drove European
countries – and Germany more than any other
country in the world – to inject monstrous amounts of government cash into the
private sector. Perhaps it’s the British that should be wary about the EU
holding up its side of the bargain not to engage in unfair state aid, not the
other way around.
https://twitter.com/Schuldensuehner/status/1262228416343863296?s=20
The EU state aid
regime is also becoming ever more politicised, especially in
recent years. Margrethe Vestager, European Commissioner for Competition since
2014, has been overruled by the EU’s top court over her attempts to requalify
special national tax arrangements provided by Belgium and Ireland as ‘unfair
state aid’. Her claims that these tax arrangements were not really open to any
company were dismissed. In the past, Donald Trump has dubbed her the ‘tax lady’, referring to her
zeal to use her competition powers to force the likes of Apple to pay massive
back-taxes retroactively. Her interest in extracting more cash from companies
stands in sharp contrast with her permissive attitude – long
before Covid – toward European
governments that bail out companies or restrict competition, at the expense of
taxpayers and consumers. This should serve as yet another argument for the UK
not to subject itself to the EU’s legal framework for competition policy.
At the heart of all this, is that EU officials are not comfortable with the idea of allowing the UK to steer its own regulatory course, picking and choosing when to align with EU rules, depending on whether this results in market access or not. Yet such an arrangement is precisely what the EU negotiated with Switzerland back in the 1990s, which has worked fine now for 20 years, despite the EU’s relentless attempts to erode the sovereignty obtained by the Swiss. The EU’s flexibility here was ultimately of great benefit to both sides. In some areas, the Swiss copy and paste EU rules, so not to distort supply chains. In other areas, for example when it comes to financial regulation, the Swiss only receive partial access to the EU single market, in return for regulatory independence. No talk of the EU’s ‘four freedoms’ being ‘indivisible’ here, when services do not flow as freely as goods.
When you think about
it, the EU is all about ‘pick and choose’: member states are permitted not to
liberalise services or goods when there is insufficient political support. They
can also choose whether to join the monetary union (even if they lack an opt-out,
like Sweden), whether to agree a common EU prosecutor, or whether to
permit passport-free travel. During the Covid crisis, borders were shut at will
and there have always been vast differences in how properly member states
implement EU regulation. The EU really lacks any argument to dismiss the UK
wanting to pick and choose, and it should certainly not use it to refuse a fair
and flexible trade deal, which would inflict great damage to the already badly
suffering economies of both Britain and mainland Europe.
Policy competition is
fundamentally a good thing for the EU. To tackle Covid, an unknown challenge,
European governments have taken very different approaches. This trial and error
permits member states to observe who got things right and who did not. A
top-down approach prevents countries from learning from each other.
When it comes to
state aid, the natural compromise is for both the UK and the EU to promise they
will not engage in unfair state aid – but trust each other to implement
that commitment themselves.
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